China Stocks Dive Deeper; Alibaba Group Holding Limited, Baidu, Inc. in the Red

Alibaba Group Holding Ltd (BABA) and Baidu Inc (ADR) (BIDU) are among the China-based ADRs in the red

Jul 7, 2015 at 11:40 AM
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Along with commodity stocks, China-based equities are once again swimming in red ink, following the Shanghai Composite lower. Among the notable decliners are e-commerce concern Alibaba Group Holding Ltd (NYSE:BABA) and Internet search titan Baidu Inc (ADR) (NASDAQ:BIDU). Both stocks are currently down more than 4%, with the former touching a fresh all-time low. 

Specifically, BABA is 4.9% lower at $76.32, and just off a record low of $76.21. The stock has surrendered 7.3% so far in July, and has spent the past month succumbing to pressure from its 10-day moving average. Even before today, BABA's 14-day Relative Strength Index (RSI) sat at 29 -- in oversold territory.

Despite the sector sell-off, over the past five sessions, BABA calls have more than doubled puts. What's more, of the roughly 366,000 BABA calls traded since late June, more than 300,000 were out of the money. For comparison, of the 169,000 BABA puts exchanged, just 71,000 -- or 42% -- were out of the money.

Digging deeper, a healthy portion of the new positions were added in the January 2016 series, with open interest at the 95-strike call surging by nearly 12,000 contracts -- more than double the second most-popular strike (January 2016 80-strike call). Overall, nearly 1.1 million BABA calls are open right now -- in the 96th percentile of its annual range. On the flip side, fewer than 70,000 BABA puts are open.

Echoing this, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio sits at 3.69. In other words, option buyers have picked up nearly four Alibaba Group Holding Ltd (NYSE:BABA) calls for every put during the past two weeks -- a bullish bias, on the surface.   

BIDU, meanwhile, is down 4% at $181.40 -- on pace for its lowest close in more than a year. The stock has shed roughly 8% in July, and is down 19.4% in 2015, with rally attempts halted by its 32-week moving average. As with BABA, BIDU was already in oversold territory even before today's plunge, with a 14-day RSI of 28. 

During the past two weeks on the ISE, CBOE, and PHLX, BIDU speculators have picked up puts over calls at a faster-than-usual clip, as the equity's 10-day put/call volume ratio of 0.92 stands higher than 93% of all other readings from the past year. 

However, the weekly 7/10 calls have generated the most new positions since the end of June, with the 190 and 192.50 strikes adding roughly 1,400 and 1,200 contracts, respectively. Amid the escalating volatility in Chinese stocks, the security's 30-day at-the-money implied volatility now sits at 41.8% -- in the 93rd percentile of its annual range. For comparison, Baidu Inc's (ADR) (NASDAQ:BIDU) 30-day historical volatility sits at 21.9%, suggesting traders are paying up for their near-term bets on the equity.


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