BABA Blunders on Anti-Monopoly Probe

The news is sinking most major U.S.-listed Chinese tech names this morning

Deputy Editor
Dec 24, 2020 at 9:14 AM
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The shares of Alibaba Group Holding Ltd (NYSE:BABA) are down 10.4% at $229.60 this morning, following news that the company is under antitrust investigation by the Chinese government. Regulators are examining Alibaba's recent requests for exclusive merchant agreements and other monopolistic practices. This investigation is indicative of the heavier regulation tactics the Chinese government is taking to reign in some of the regions tech giants, and in turn the move has put a damper on most of the sector this morning. 

For BABA in particular, this news has the stock trading back near its early July levels, breaching support at its 180-day moving average. This is a far cry from the equity's all-time highs just below the  $320 mark, notched in late October, though support at the 320-day could capture some of today's losses. 

Analysts are still overwhelmingly bullish on BABA. All fifteen call it a "buy" or better. Meanwhile, its 12-month consensus price target of $339.37 is a hefty 32.5% premium to last night's close. 

While calls are outpacing puts on an overall basis in  BABA's options pits, these bears have ramped up their positions in the past couple of weeks. This is per the equity's 10-day put/call volume ratio of 0.48 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 73% of readings from the past year. 

And the premiums can be had at a bargain, according to the stock's Schaeffer's Volatility Index (SVI) of 33%, which stands higher than 23% of all other readings in its annual range. This implies that options players are pricing in relatively low volatility expectations on BABA at the moment -- a boon for premium buyers.

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