Most Active Options Update: Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding Ltd traders anticipate a struggle near the century mark

by Karee Venema

Published on Oct 27, 2014 at 2:33 PM
Updated on Apr 20, 2015 at 5:32 PM

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is China-based e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA), as traders roll the dice on a short-term struggle near the round-number century mark.

Most Active Options Table

Alibaba Group Holding Ltd is trading 2.6% higher today at $98.24, after Jefferies started the stock with an upbeat "buy" rating and a $118 price target -- territory yet to be charted by the Wall Street freshman. This forecast for a move above the century mark just echoes a recent trend witnessed among the brokerage bunch, but today's options activity reveals a number of traders are at odds with this outlook.

Taking a quick step back, calls are trading at two times the average intraday pace. Amid this accelerated activity -- and with earnings due out next week -- BABA's 30-day at-the-money implied volatility (IV) has surged 7.8% to a record peak of 46%, signaling elevated demand for short-term contracts.

Drilling down, BABA's weekly 10/31 100-strike call is most active, with 10,522 contracts on the tape at last check. The majority of these have crossed at the bid price, IV is up 4.8 percentage points, and volume outstrips open interest, suggesting new short positions are being initiated. By writing the calls, speculators expect BABA to stay beneath $100 through Friday's close, when the weekly series expires. Delta on the call is docked at 0.35, indicating a 35% chance the position will be in the money at week's end.

As touched upon, Alibaba Group Holding Ltd (NYSE:BABA) will take its inaugural turn in the earnings confessional ahead of next Tuesday's open. For the company's third quarter, Wall Street is calling for a per-share profit of 48 cents.


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