Option Investor

New Portfolio Position: SINA "Bear-Call" Spread Projected Gain = $200

Printer friendly version
SINA - SINA Corporation $28.02

SINA Corporation (NASDAQ:SINA) is an online media company that provides value-added information services in China and for Chinese communities worldwide. It provides services through SINA.com, SINA Mobile, SINA Online, SINA.net, and SINA E-Commerce. The company's services include online portals, mobile value-added services, search and directory, interest-based and community-building channels, free and premium email, online games, virtual ISP, classified listings, fee-based services, e-commerce, and enterprise e-solutions.

Sina is one of those companies that always seems to be "in the news" with regard to merger/buyout speculation and the stock has received lots of attention since Shanda Interactive Entertainment (NASDAQ:SNDA) purchased a 20% stake in the company in February. Analysts say Shanda, which is China's leader in online games, was simply trying to capitalize on the enormous potential in Chinese internet industry. However, stocks in this segment have performed poorly during the past few quarters and Sina recently posted its first year-on-year profit decline since late 2002. First-quarter net income fell 36% after the Chinese government banned television and radio ads promoting Sina's fortune-telling service through text messaging, thus reducing revenues from one of the company's most successful lines of business.

Despite the slump in earnings and a mediocre forecast for current-quarter revenues, SINA continues to be a favorite "growth" stock among retail and institutional investors. In addition, the ongoing speculation among option traders helps keep the premiums robust and that is the primary reason for the large credit in this short-term spread. Readers should try to open the spread with a slightly higher credit ($0.45 -$0.50) initially, to allow for the daily volatility in the underlying issue.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (less conservative - bearish/credit spread):

BUY CALL JUN-35.00 NOQ-FG OI=3518 ASK=$0.10
SELL CALL JUN-30.00 NOQ-FF OI=12776 BID=$0.50

POTENTIAL PROFIT (X 5 contracts @ $0.40) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
COST BASIS = $30.40


Once the position is open, traders should place a (contingent) order to close the short ($30.00) call options if the stock price moves above $29.75 on an intraday basis. A "net-debit" order of $0.90-$0.95 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.

Monthly Cash Machine Newsletter Archives