Options traders today have set their sights on Baidu, Inc. (BIDU - 131.28) and XL Group plc (XL - 22.25), with volume outpacing the expected intraday level on both stocks. Judging by a preference for out-of-the-money puts, speculators seem to be bracing for near-term losses from both BIDU and XL.
Starting with BIDU, put volume has ramped up to two times the norm, with roughly 25,000 contracts exchanged so far. The most active strike is BIDU's June 125 put, where 3,230 contracts have crossed the tape -- 69% at the ask price, suggesting a bias toward buying activity. Implied volatility on this front-month strike is up 5.6 percentage points as a result.
BIDU is off 1.5% at last check, with the stock threatening to slip below support at its 20-week moving average. This trendline has helped usher BIDU to a gain of nearly 38% in 2011, and hasn't been breached on a weekly closing basis since Dec. 31.
As for XL, put volume has spiked to nine times the expected level, with more than 5,700 contracts changing hands. The center of attention is XL's July 20 put, where 3,911 contracts have traded -- 93% at the ask price, indicating that buyers are driving the bulk of the volume. With only 121 contracts in residence at this back-month strike, it seems safe to assume that new bearish bets are being added today.
XL is locked in a short-term slump on the charts, having lagged the broader S&P 500 Index (SPX) by more than eight percentage points, on a relative-strength basis, during the past 40 sessions. The shares are now testing a potential foothold in the form of their 200-day moving average, located near $22.
-posted by Elizabeth Harrow (eharrow@sir-inc.com)
