Unusual Stock Options Volume Is Just What China’s Economy Needed

Once the undisputed market juggernaut, Chinese stocks suffered significant damage following the onset of the COVID-19 crisis. While the equities sector of the world’s second-largest economy mounted a recovery effort in 2021, the current year imposed several challenges, in no small part brought on by Beijing’s imposition of a zero-COVID policy. As a result, Chinese social networking specialists like Hello Group (MOMO) had little else to go this year but down.

Adding to the risks of Chinese stocks was the authoritarian nature of the underlying government. What’s more, President Xi Jinping essentially awarded himself a third five-year term, busting prior norms. Not surprisingly, then, Xi filled various seats of power with his core supporters, ensuring absolute rule. Naturally, such a framework boded poorly for initiatives such as free market reform. However, the Chinese remarkably refused to be silenced.

After yet another round of lockdowns and draconian mitigation measures, China’s public sharply protested, with many calling for President Xi to resign. Symbolizing meaningful capitulation, “China rolled back rules on isolating people with COVID-19 and dropped virus test requirements for some public places” last week, according to the Associated Press.

Further, with greater mobility comes opportunities for socialization. In turn, MOMO stock represented one of the biggest beneficiaries, soaring to remarkable heights. Leveraging popular dating apps like Momo and Tantan, Hello Group effectively received a lifeline. After all, unless these restrictions fade away, the company’s addressable market would be greatly diminished.

Adding to the enthusiasm for MOMO stock, Hello Group topped its third-quarter earnings and revenue estimates. Per Zacks Equity Research, the company posted earnings per share of 37 cents, beating out the consensus target of 29 cents. On the revenue front, it rang up $454.49 million, exceeding analysts’ forecast by 2.93%.

Even better, options traders took notice, suggesting further upside ahead.

MOMO Stock Lights Up Unusual Stock Options Volume Screener

Following the close of the Dec. 9 session, MOMO stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This metric shows the difference between the current volume and the average volume over the past month. Typically, traders use this information to determine which stocks may be due for big moves ahead.

Specifically, MOMO’s volume hit 47,693 contracts against an open interest reading of 93,450. Call volume hit 29,959 versus put volume of 17,734. The implied volatility (IV) rank hit 44.45%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

Succinctly, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for MOMO stock was 14.62% on April 14, 2022. A month earlier on March 14, MOMO hit its IV high at 213.48%. Prospective investors should note that per Barchart.com’s technical analysis gauge, MOMO ranks as an average 72% buy. While Hello Group lost 2.7% of equity value on a year-to-date basis, it gained 59.2% in the trailing five sessions.

While options sentiment for MOMO stock has been all over the map this year, it’s also fair to point out that the Chinese government imposed many hardships on its publicly traded companies. With some clarity provided regarding COVID lockdowns, the paradigm essentially shifted for Hello Group.

A High-Risk, High-Reward Opportunity

On the other end of the equation, it’s difficult to comprehensively trust MOMO stock. This pensiveness is less about the underlying company and more about the overriding government authority. As another AP article pointed out, several experts remain cautious about China’s COVID-policy-related pivot.

Still, for speculators willing to risk money they can afford to lose, MOMO stock might be worth consideration. It all boils down to what you might term “humans will human” thesis.

Back home, Americans for the most part patiently played their role in mitigating the COVID-19 disaster. However, after roughly two years of lockdowns and other restrictive protocols, collective cabin fever set in. A phenomenon known as revenge travel – or the desire to make up for lost time by going out on vacations and enjoying experience-based excursions – took hold of consumers.

Fundamentally, a similar phenomenon may erupt but this time for social connections, particularly dating. As the New York Times mentioned, one of the most difficult aspects of enduring the COVID-19 pandemic was social isolation. Such intense emotions must be exponentially magnified in China, which ultimately means MOMO stock could be the surprising hit of 2023.

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