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
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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.


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