Most Active Options Update: Alibaba (BABA)

Alibaba Group Holding Ltd option bulls won't give up

Nov 19, 2014 at 2:21 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 China-based e-commerce firm and arguable market darling Alibaba Group Holding Ltd (NYSE:BABA), which continues to attract short-term option bulls.

Most Active Options Table

Alibaba Group Holding Ltd is 0.6% lower at $110.15, bringing its week-to-date loss to 4.3%. Nevertheless, intraday call volume is running at twice the average pace, with roughly 220,000 contracts traded -- more than double the number of BABA puts exchanged.

The equity's 30-day at-the-money implied volatility (IV) has edged 3.9% higher, hinting at elevated demand for short-term contracts. Lo and behold, the most active option thus far is the at-the-money November 110 call, with close to 19,000 contracts traded.

A healthy portion of the calls crossed on the ask side, IV is rising, and volume exceeds current open interest, pointing to newly bought bullish bets. This theory is at least partially confirmed by data from the International Securities Exchange (ISE).

By buying the calls at a volume-weighted average price (VWAP) of $1.21, the buyers will profit if BABA climbs back atop $111.21 (strike plus VWAP) by Friday's close, when front-month options expire. Profit potential is theoretically unlimited north of breakeven, while risk is capped at the initial premium paid for the contracts.

As Alibaba Group Holding Ltd (NYSE:BABA) ticks lower, delta on the call has dropped to 0.51 from 0.58 at yesterday's close, pointing to reduced odds of an in-the-money expiration. Although BABA has added roughly 19% since its public debut on Sept. 19, the stock has shed 8.2% since peaking at $120 last Thursday, and is on pace to finish a second straight session beneath its 10-day moving average.

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