Most Active Options Update: Alibaba Group (BABA)

Alibaba Group Holding Ltd options are on fire after another record high

Nov 13, 2014 at 12:52 PM
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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 Chinese e-commerce titan Alibaba Group Holding Ltd (NYSE:BABA), which is seeing rampant options activity as the stock assails new heights.

Most Active Options Table

Like affiliate Yahoo! Inc. (NASDAQ:YHOO), the shares of Alibaba Group Holding Ltd just won't quit. The stock tagged a fresh record high of $120 earlier in the session, thanks to solid inaugural debt ratings, but has since retreated 1.7% to $116.25, as speculators take profits. That's not too surprising, though, considering BABA's 14-day Relative Strength Index (RSI) stands at a lofty 85 -- in overbought territory, signaling a short-term breather may have been due.

BABA bulls are also taking profits in the options pits. Intraday option volume is running at two times the normal rate, though calls have outnumbered puts by a margin of more than 2-to-1.

Upon closer inspection, it looks like some bulls are selling to close their weekly 11/14 118- and 119-strike calls, per data from the International Securities Exchange (ISE). The former option was asked at just $0.30 on Nov. 5 -- when BABA was flirting with $109 -- and is now bid at $0.65. The latter contract, meanwhile, was asked at $0.23 just over two weeks ago, and is now bid at $0.40.

Of course, a healthy portion of today's activity likely consists of eleventh-hour bullish betting. Garnering notable attention has been the weekly 11/14 117-strike call, where implied volatility has popped 12.2 percentage points, volume outstrips open interest, and most of the calls traded on the ask side -- all signs of newly purchased positions.

By buying the calls to open, the traders expect BABA to resume its uptrend through tomorrow's close, when the weekly options expire. Specifically, the volume-weighted average price (VWAP) of the calls is $1.52, meaning the buyers will make money if BABA retakes $118.52 (strike plus VWAP) by the end of the week. Profit potential is theoretically unlimited north of breakeven, while risk is capped at the initial premium paid for the calls, should BABA remain south of the strike through the option's short lifetime.

As alluded to earlier, Alibaba Group Holding Ltd (NYSE:BABA) has been a beast on -- and off -- the charts of late. The stock has advanced more than 18% in November alone, with help from a record-setting "Singles Day," and has tacked on more than 25% since its mid-September IPO. As such, analysts are overwhelmingly optimistic, with 20 out of 20 brokerage firms doling out "buy" or better endorsements.

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