Bulls Line Up Behind Alibaba Group Holding Ltd (BABA) Ahead of Earnings

Bullish expectations from analysts and options traders are growing toward Alibaba Group Holding Ltd (BABA)

Josh Selway

Oct 27, 2016 at 11:06 AM

BABA

The latest pre-earnings bull note hasn't managed to help e-commerce stock Alibaba Group Holding Ltd (NYSE:BABA), down 0.5%. This time around, it's Citigroup weighing in on BABA, raising its price target to $133 from $112 -- well into record-high territory. Bullish attention is nothing new for BABA, though. For example, 16 of 17 covering brokerage firms recommend buying the stock, and its average 12-month price target stands at $115.71, which represents 13% upside to its current price of $102.24.

This bullish outlook makes sense given BABA's technical performance this year. Year-to-date, the shares are roughly 26% higher, touching an annual high of $109.87 just a month ago. More recently, the shares have pulled back to test support at their rising 50-day moving average.

As alluded to, Alibaba is scheduled to report earnings next Wednesday morning, and the stock will be going for its third straight post-earnings advance. Going back eight quarters, BABA stock has averaged a 5.3% swing in either direction, in the session following earnings. This time around, the options market is pricing in a slightly larger move of 6.2%.

Speaking of BABA options, bullish expectations have been on the rise for weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has a 50-day call/put volume ratio of 2.86, which is just 1 percentage point from a 12-month high. Strengthening this point, BABA's Schaeffer's put/call open interest ratio (SOIR) is 0.66, which reveals call open interest outweighs put open interest among options expiring within three months.

At the same time, some of this call bias could be connected to Alibaba Group Holding Ltd's (NYSE:BABA) elevated short-interest levels. By the numbers, 11% of the stock's float is sold short, equating to nine days' worth of buying power, going by the equity's average daily volume. Considering this, some of the recent call buying on BABA could be attributed to short sellers hedging against an earnings-induced rally.

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