China Bulls Discover Youku Todou

By David Russell, reporter at OptionMonster

NEW YORK -- Chinese Internet stocks have been incredibly strong recently, and the lightning struck Youku Todou ( YOKU) on Friday.

OptionMonster's tracking systems detected unusual activity in the August 19 calls, with some large blocks snapped up early for $2.35 to $2.50. More than 2,600 contracts changed hands at the strike by the closing bell.

These options lock in the price where stock can be purchased in the Beijing-based company, which provides streaming videos. Given their relative cheapness, they can generate some significant leverage from even a modest move in the share price. That happened on Friday as Youku's stock kept nudging higher, and at one point those calls traded for as much as $3.30 -- a gain of about 40%.

Youku closed Friday at $21.27, up 3.76% on the session. It's been lagging its peers and is ranked by our researchLAB service as the worst-performing Chinese Internet stock in the last three months. Others such as Sina and Baidu have been knocking the cover off the ball in recent weeks.

Overall option volume in Youku was seven times greater than average in the session. Calls accounted for four-fifths of the total.

Russell has no positions in YOKU.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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