Friday, October 23, 2009

Baidu (BIDU) Directional Trade

Looking at a few stocks that have just recently reported blowout earnings after already amazing stock climbs.
Will Baidu make it a Trifecta?
Chinese Internet search powerhouse has forecast a third quarter EPS of $1.80.
Baidu Earnings Conference Call (Q3 2009)
Scheduled to start Mon, Oct 26, 2009, 8:00 pm Eastern

Now if you wanted to buy 100 shares @ Friday's close of $ would cost you $43,500, alot of money...especially after a four-fold increase this year. The play here is via options and to get the direction correct. Based on recent rallies on market leading tech companies post earnings news...I'd say higher is the play.

Here's the play using OPTIONS (note this is a risky trade):

Buy the November $430 call option ticker BPJ-KF $25.00 Ask
to fund this will limit the upside by Selling the November $450 call option, ticker symbol BPJ-KX for $15.50 Bid.
So the call spread will cost $9.50 [BIDU closed @ $435.31 break even $439.81]
Now, if you really want to turbo charge this trade, sell a put.
Sell the November $390 put, ticker symbol BPJ-WR for $6.30 bid.
This will bring the total cost of the option trade to $3.20.
***NOTE; selling the put means you may have to either buy the stock @ $390 or buy back the put. Again this is a high risk trade. Conservative traders stick with the call sprerad only.

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