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Alibaba Group Holding Ltd call volume is trading at two times the average intraday pace today
Alibaba Group Holding Ltd (NYSE:BABA) rallied to a fresh record peak of $117.42 earlier, but was last seen up 1.7% at $116.50, as optimism builds ahead of tomorrow's highly anticipated "Singles Day" shopping extravaganza. In the equity's options pits, call volume has soared to almost three times what's typically seen at this point in the day, and according to BABA's 30-day at-the-money implied volatility (IV) -- which is up 10% to 45.6% -- short-term contracts are in high demand.
Specifically, the stock's weekly 11/14 120-strike call has seen the most action, with 8,501 contracts on the tape. The volume has been split between the bid and the ask prices, IV has shot almost 19 percentage points higher, and volume outstrips open interest, hinting at a respective mix of sell- and buy-to-open activity at this out-of-the-money strike.
By selling to open the calls, speculators expect the $120 area to serve as a level of resistance through week's end, when the series expires. Meanwhile, those buying to open the calls are rolling the dice on BABA rocketing past $120 by Friday's close -- and into new record-high territory. Delta on the call is docked at 0.34, suggesting a roughly 1-in-3 chance the option will be in the money at expiration.
Today's positive price action is just more of the same for Alibaba Group Holding Ltd (NYSE:BABA), which has tacked on almost 26% since going public on Sept. 19. Not surprisingly, option traders have shown a preference for long calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, speculators have bought to open 2.81 BABA calls for each put over the past 10 sessions.