Youku Pullback Brings Out bulls

By Mike Yamamoto of OptionMonster

NEW YORK -- Traders are betting that Youku Tudou (YOKU) will rebound from its recent drop.

OptionMonster's tracking systems showed heavy buying in the April 34 calls Wednesday, which went mostly for $1.10 to $1.25. More than 10,500 traded in volume far above the strike's previous open interest of just 348 contracts, a clear indication of new positioning.

These calls lock in the price where the stock can be purchased through mid-April no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $34.

Youku shares fell 1.45% to $30.59 on Wednesday. The Chinese video-streaming company ran up to $37.74 last week following strong quarterly results in late February, its highest price since August 2011, but then pulled back sharply.

Total option volume in the name topped 30,500 contracts Wednesday, more than triple its daily average for the last month. Overall call outnumbered puts by a bullish 5-to-1 ratio.

Yamamoto owns YOKU shares.

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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