This Trade Targets a 100% Potential Return by April

Option Trade Of The Day: International Ltd. (Nasdaq: CTRP) International is a Chinese travel website based in Shanghai.

The company operates as an agent for hotel-related transactions; sells air tickets; and other related services, and provides independent leisure travelers bundled packaged-tour products comprising group tours, semi-group tours, and customized tours and packaged tours.

I couldn’t get an overall sentiment grade on Ctrip the way I usually do because the stock is a Chinese stock.

The site that I use for the overall sentiment grade only provides that information on U.S. companies and ETFs.

However, I can tell you that analysts are very bullish toward the stock as 30 out of 32 rank the stock as a “buy” or better.

This leaves room for downgrades that could help move the stock lower.

The chart shows that the stock has been moving lower over the last five months, but has rallied over the past month. The rally moved the stock in to overbought territory on both the RSI and stochastic readings before reversing yesterday. Looking back at the instances where the stock was overbought and the indicators reversed, this has been a pretty reliable tool. I look for the stock to move down in the next month and a half and could hit a new 52-week low in the process.

Buy to open, the Mar18, 50 strike puts on CTRP. These options expire on March 16. The option’s closing ask price last night was $4.10 and it is $2.85 in the money. This means you are paying 70% for the intrinsic value and only 30% for the time premium. In the past few instances where the oscillators were overbought and reversed, the stock as moved down 11.5%, 19.1%, 18.3%, and 12.6%. Using the smallest of those declines as a target and the recent high, a similar move would take the stock down to $42.55 and would make this option worth at least $7.45 in intrinsic value alone. Hopefully there would still be some time premium left in them as well. The stock has been in a pattern over the past week or so of moving up one day and down the next. If that holds true today, the stock would be higher on the day and you should be able to get in a little lower than the $4.10 price. Target 100% on the trade, but don’t sweat it if you can get 85-90%.

— Rick Pendergraft

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