To The Moon

$Baidu(BIDU)$ plunged 7% on Friday. Chinese concept stocks were already skittish, and the market is worried about the next black swan event.

The earliest source was a report from the South China Morning Post, which stated that Wenzhen Yiyuan and iFlytek's Xinghuo model for testing AI systems has been opened to a research laboratory of the PLA Strategic Support Force.

Reasons not to recommend a buy on dip

1. Baidu may be subject to sanctions by the US government, from an international investment perspective, it is inevitably "sell first, talk later."

2. Baidu's main business faces many competitors and loses growth potential.

3. Overall macro data is not conducive to the overall development of the advertising industry.

4. Foreign investment began to withdraw from Chinese concept stocks in 2023, and there is no sign of a reversal in the short term. It will be difficult to see an increase without more institutional buyers entering.

Reasons not to recommend shorting but can Sell PUT

Because Baidu has accumulated assets (cash and other assets) for buybacks in the secondary market.

1. The three-year buyback plan for 2020 was $4.5 billion, with buybacks of approximately $2 billion, $1.19 billion, and $280 million in 2020-2022, completing about 77% of the plan.

2. The three-year buyback plan for 2023 is $5 billion, with $350 million repurchased in the first three quarters of 2023.

The market value at the close on the 12th was $38.1 billion, with $30.7 billion in circulation.

If the final repurchase completion rate is similar to the previous plan of 75%, there is still $3.4 billion remaining, with an average annual repurchase of $1.7 billion, which can repurchase 5.6% of the total market value;

If the completion rate can reach 100%, there is still $3.4 billion remaining, with an average annual repurchase of $2.3 billion, which can repurchase 7.5% of the total market value;

If it is repurchased daily, spread over 252 trading days, an average of 2-3% of the total trading volume can be repurchased each day.

However, most of the repurchases of Chinese concept stocks still occur during large declines and low stock prices, which is more inclined to "support the bottom."

Therefore, selling PUT can be considered during a large decline.

Based on the open interest options traded on the 12th (January options), a large amount of open PUT options are still concentrated around a price of 95.