Chinese E-commerce company DangDang Inc(Dang) has been soaring in the past month and is up big this week on heavy volume. Dang profile: http://finance.yahoo.com/q/pr?s=DANG+Profile. The shares may continue to see huge upside over the long run and is a high growth/high beta stock. It was recently announced that famous institutional money manager Tiger Global Management has increased there holding in Dang and is the largest institutional shareholder of the company. Clearly, they are betting on the long term growth of Dang as well and have an extremely successful track record of making money in the global equity markets. Check out this recent article by Seeking Alpha: Dangdang: Like Rolling Back Time To Buy Amazon At $6at Seeking Alpha(Tue, Jan 17).
So what is the Options play on Dang??
Options Trade#1: I like selling the Dang Feb 17, 2012 7 strike Put Options for .65 cents a contract. If I sell 10 contracts I will collect a premium of $650 minus trading fees. If the stock closes above $7 at expiration, I will make $650 minus fees. Worst case scenario, I get exercised on the shares and I am comfortable being long the stock at $7 a share. By selling the puts it will help finance the potential purchase of 1000 shares of Dang at $7. Ten contracts x 100 shares per contract=1000 shares. To put on this trade, I will need $7,000 in collateral in my brokerage account in case I get exercised on the shares of stock. Here is the yahoofinance options chain http://finance.yahoo.com/q/op?s=DANG&m=2012-02.
Options Trade#2: For the big Dang bulls, I would think about buying the Dang Jun 15 2012 8 and 9 Call Options. http://finance.yahoo.com/q/op?s=DANG&m=2012-06 I like the 8 strike Calls at .95 cents and the 9 strike Calls at .45 cents on a pullback in the stock to around 6.75. I also like buying the 1o strike leap call options on Dang. I would think about buying the Dang Jan 17, 2014 10 strike Call Options for around 1.90 a contract. http://finance.yahoo.com/q/op?s=DANG&m=2014-01. If Dang stock trades back to over 30 in the next few years, these leap call options will be worth big money!! Stay tuned for more action on optionshoney.com.