Why Alibaba Stock Hit 5-Year Lows After Earnings

Options volume is running at double the intraday average

Deputy Editor
Feb 24, 2022 at 10:26 AM
facebook twitter linkedin

Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) entered the earnings confessional this morning to report fiscal third-quarter results. The company's quarterly revenue grew 10% year-over-year, its slowest growth rate since going public in 2014, missing forecasts. Sales also fell short of Wall Street's estimates, amid increased competition in China's e-commerce space. While earnings beat forecasts, BABA earlier hit a five-year low of $100.02, and was last seen down 2.7% at $106.80.

On the charts, the 80-day moving average has kept a tight lid on BABA for the past 12 months. Today's dip has the stock slipping further below a recent floor at the $110 level, while pacing for its ninth daily loss in 10 sessions. Year-over-year, BABA is down 57.4%.

Options traders are blasting BABA in response to the event. Already, 54,000 calls and 49,000 puts have exchanged hands, which is double the amount typically seen at this point. Most popular is the weekly 2/25 100-strike put, followed by the 105-strike put in the same series.

A broader look shows option traders were more privy to puts in the two weeks leading up to earnings. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Alibaba stock sports a 10-day put/call ratio of 0.63 that stands higher than all but 2% of readings from the past 12 months. So, while calls outnumbered puts on an overall basis, the latter were picked up at a much quicker-than-usual clip.

Analysts have yet to respond to the event, but those in coverage seem to be holding out hope for BABA. Just two of the 10 in coverage call the equity a "hold," while the rest say "buy" or better. Plus, the 12-month consensus price target of $199.92 is a massive 86.3% premium to current levels.


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Best stocks for October and worst stocks for October


Special Offers from Schaeffer's Trading Partners