Pre-Earnings Call Buyers Blitz Alibaba Group Holding Limited (BABA)

Alibaba Group Holding Ltd (BABA) will report earnings ahead of tomorrow's open

Jan 28, 2015 at 1:53 PM
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Option bulls have been active on Alibaba Group Holding Ltd (NYSE:BABA) in recent weeks, as the firm prepares to tell all in the earnings confessional ahead of tomorrow's open. Specifically, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.66 calls for every put during the past 10 sessions.

It's a similar set-up in today's trading, with calls crossing the tape at nearly three times the average intraday rate, and outpacing puts by a 2-to-1 margin. Receiving notable attention has been BABA's weekly 1/30 100- and 105-strike calls, and signs suggest some of the activity is of the buy-to-open kind. By initiating the long calls, speculators expect BABA to be sitting atop the respective strikes by week's end, when the series expires.

Tomorrow morning's fiscal third-quarter earnings report marks just the second time BABA has taken its place on the earnings stage since going public last September. In the wake of its previous quarterly report in early November, the stock tacked on 4.2% in the subsequent session. This time around, the options market is projecting a bigger move of 6.6%, but considering the weekly 1/30 100-strike put and call are pricing in similar implied volatility, it's unclear as to which direction the action is expected to resolve itself.

Today, the shares are roughly 2.8% lower at $100.12, amid news of a public squabble with Chinese regulators over BABA's handling of illegal businesses on its platform. This comes on the heels of yesterday's uninspiring announcement from the company's entertainment division. Elsewhere, Yahoo! Inc. (NASDAQ:YHOO) said late Tuesday that it will spin off its massive stake in Alibaba Group Holding Ltd (NYSE:BABA) into a separate entity.

Daily Chart of BABA Since September 2014

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