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Options: 3 Big Blue Chips to Trade Before Earnings

AMZN, BIDU and P enter the earnings confessional soon. Get out in front with these options ideas

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Baidu (BIDU)

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Chinese Internet giant Baidu (NASDAQ:BIDU) will follow Amazon onto the earnings stage on Thursday. Chinese Internet stocks are expected to perform well this quarter, as evidenced by Alibaba’s earnings data released in Yahoo’s (NASDAQ:YHOO) recent quarterly report. For the record, analysts are expecting Baidu earnings of $1.03 per share on revenue of $1.5 billion.

Sentiment is quite bullish on all fronts ahead of Baidu earnings. Wall Street has doled out 27 “buy” ratings, according to Thomson/First Call data, compared to seven “holds,” and just one “sell” rating. Options traders are also on the bullish bandwagon, with BIDU stock’s weekly April 26 put/call open interest ratio of 0.65 revealing a considerable preference for calls over puts.

Implieds for weekly April 26 options are pricing in a potential post-earnings move of about 6% for BIDU stock. This places the upper bound near $172.65 and the lower bound at $152.35. BIDU is currently rebounding from support in the $150 region, which is home to the stock’s 200-day moving average. The shares are currently challenging their 50-day trendline, and a breakout here clears the way to the next resistance level near $175.

Bull Call Spreads on BIDU Stock

With solid price action and indications of strong growth in the Chinese Internet sector, traders might want to consider a BIDU May $160-$170 bull call spread. At last check, this spread was offered at $4.35, or $435 per pair of contracts. Breakeven lies at $164.35, while a maximum profit of $5.65 is possible if BIDU stock closes at or above $170 when May options expire.

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