Baidu: Ready to Make New Highs?
Baidu Incorporated (NASDAQ: BIDU) has been on a strong upward move as of late. There hasn't been a real dip in this stock since the beginning of 2013. In July 2013, Baidu received an even bigger boost with a better than expected earnings report.
Now it looks like Baidu is setting up to breakout to new highs. Shares are a bit overbought here, but the momentum behind this stock could propel it past this 170 resistance.
With it being overbought, traders don’t want to come in and just buy calls. There could be a slow down (sell off) at this resistance before it breaks out to new highs. With a clearly defined resistance and support coming up from the bottom, traders want to sell puts in the December expiration. This will give a nice return and the ability to play this stock if it breaks out or if it just sits there and churns.
The options we are looking at are the 150 puts for December. The 150s will give us a support level to insure our position remains profitable. We are going to sell these puts for a 0.70 credit for a five percent return.
Traders probably won’t hold this play until expiration unless Baidu takes off over 170. Ideally, traders would like to take it off next week and collect a majority of the credit.
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