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One Alibaba Group Holding Ltd speculator employed a bull call spread
Alibaba Group Holding Ltd (NYSE:BABA) options traders have bought to open 2.67 calls for every put during the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). That trend is continuing today, with intraday call volume nearly tripling put volume.
Among the most active BABA options are the weekly 1/2 105-strike and 107-strike calls. In fact, the two biggest transactions of the day occurred here, as one trader bought to open 914 of the lower-strike calls, and sold to open a matching block of the higher-strike calls -- employing a strategy known as a bull call spread. In so doing, the speculator anticipates BABA will continue moving north of $105 through this Friday's close -- when the weekly series expires.
At last check, the shares are 0.4% higher at $106.40. However, since hitting a record level of $120 in mid-November, the equity has given back 11.3%.
Should this recent slump continue, Alibaba Group Holding Ltd (NYSE:BABA) could be in trouble. All 22 analysts following the shares have doled out a "buy" or better rating, potentially setting them up for a round of downgrades.