Options Alert: Calls Surge After Chinese Travel Stock Reverses Off Lows


Chinese stocks have struggled lately as tension grows between Washington and Beijing. However, at least one trader seems bullish on travel stock Trip.com.

Heavy volume was detected in the November 38 calls, with more than 24,000 contracts changing hands for $0.15. Volume was 271 times open interest at the strike, which suggests new money was put to work.

Calls fix the price where investors can purchase a security. They can appreciate if the shares rally, but also expire worthless if they don’t move enough.

TCOM ended the session up 5.84 percent at $33.81. The price action was potentially noteworthy because the stock briefly hit a four-month low, but reversed to close at the highest level in over a week. The resulting “outside day” is a potentially bullish reversal pattern, which could make some traders expect further gains.

Trip.com (TCOM), daily chart, showing key patterns and daily call volume.

If Monday’s calls were purchased, they could generate significant leverage if TCOM surges back toward its recent highs. They could double in value every $0.15 that the stock climbs above $38.15. A return to the August 10 peak of $43.59 would translate into a potential profit of about 3,500 percent. They’ll be worth nothing below $38.

The Shanghai-based company saw revenue increase by 180 percent last quarter as travel recovered after coronavirus lockdowns. Some investors may also think it will benefit from as China stimulates its economy to offset a housing slowdown.

Overall option volume was 10 times greater than the average in the last month, according to TradeStation data. Calls outnumbered puts by a bullish 32-to-1 ratio.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.