Alibaba Stock Surges After Massive Anti-Monopoly Fine

Options traders are loading up on calls

Assistant Editor
Apr 12, 2021 at 10:09 AM
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The shares of China-based tech giant Alibaba Group Holding Ltd (NYSE:BABA) are on fire this morning, already up 7.8% to trade at $240.09. This comes even after the company was hit with a $2.8 billion fine by Chinese anti-trust regulators, stemming from an anti-monopoly investigation that was launched in December. For investors, the fine -- which amounts to 4% of Alibaba's 2019 revenue -- clarified the company's future, and analysts chimed in as a result. 

The $240 level has been a level of short-term resistance for the last month, so that will be fun to watch today. Since BABA's Oct. 27 record high of $319.32, the shares have carved out a channel of lower lows. Longer term though, Alibaba stock is up over 14% year-over-year.

Circling back to analyst sentiment, at least two bear notes rolled in for the stock. Specifically, Raymond James and Atlantic Equities cut their price targets to $330 and $290, respectively. The majority of analysts were bullish coming into today, with 17 calling it a "buy" or better, versus one "hold." Plus, the 12-month consensus price target of $319.96 is a 34.8% premium to Friday's close.

Option traders, meanwhile, have been bearish of late. While calls still easily outnumber puts on an absolute basis, BABA's 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 88% of readings from the past 12 months. This indicates a healthier-than-usual appetite for puts over the last two weeks.

Today, options traders are coming coming out in droves today. In just the first half hour of trading, 268,000 contracts have changed hands, volume that's seven times the average intraday amount. Leading the charge is the April 250 call, where new positions are being opened. Buyers of these calls are banking on more gains from BABA by the end of the week, when the standard contracts expire. 

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