Options Check-Up: Alibaba Group Holding, BlackBerry, General Motors

Analyzing recent option activity for BABA, BBRY, and GM

Nov 4, 2014 at 7:46 AM
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Among the stocks attracting attention from options traders lately are Chinese Internet bigwig Alibaba Group Holding Ltd (NYSE:BABA), smartphone maker BlackBerry Ltd (NASDAQ:BBRY), and car concern General Motors Company (NYSE:GM). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on BABA, BBRY, and GM.

  • BABA ended 3.3% higher at $101.80, and touched a record high of $102.80 in intraday action, as traders bought in ahead of this morning's turn in the earnings confessional -- the first for Alibaba Group Holding Ltd since going public Sept. 19. BABA on Monday set a record for options volume, with nearly 350,000 contracts exchanged -- mostly on the call side, hinting at fresh bullish bets. That data echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where speculators have bought to open 3.63 BABA calls for every put during the past couple of weeks. Traders have been paying a pretty penny for their short-term bets, historically speaking, as BABA's Schaeffer's Volatility Index (SVI) sits at an all-time high of 47%.

  • BBRY dipped 2.4% to $10.25, after CEO John Chen dispelled rumors of a $15-per-share buyout (it "way undervalues" the stock), as well as a potential breakup. Furthermore, Chen underscored BlackBerry Ltd's goal to rake in $100 million from its BBM messaging service in fiscal 2016. Despite today's pullback, BBRY remains 37.8% higher year-to-date; however, short sellers have been upping the bearish ante. Short interest grew 10.8% during the past two reporting periods, and now accounts for nearly 21% of the stock's total available float -- representing about eight sessions' worth of pent-up buying demand, at BBRY's average pace of trading. Some of those skeptics could be picking up options insurance via long calls, as the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 5.73 stands higher than 83% of all other readings from the past year, pointing to a healthier-than-usual appetite for calls over puts of late. Whatever the motive, BBRY's short-term options are relatively inexpensive, as the stock's SVI of 50% registers in the 21st percentile of its annual range. Plus, the security's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 98, suggesting BBRY has tended to make outsized moves on the charts during the past year, relative to what the options market has priced in.

  • Finally, GM gave up 0.7% to land at $31.18 on Monday, after traders panned the company's disappointing October sales report. In addition, reports indicate the number of claims for injuries or deaths related to GM's faulty ignition switches rose 12% week-over-week, to 1,772. In 2014, the shares of GM have surrendered 23.7% of their value, yet option traders maintain rose-colored glasses. The equity's 10-day ISE/CBOE/PHLX call/put volume ratio stands at a 52-week peak of 7.43, indicating traders have bought to open GM calls over puts at fever pitch during the past two weeks. The stock's SVI of 23% stands higher than just one-third of comparable readings from the past year, suggesting General Motors Company's short-term options are attractively priced, relatively speaking.

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