Options Popular as Alibaba Group Holding Limited (BABA) Tanks

Taiwan is giving Alibaba Group Holding Ltd (BABA) the boot

Digital Content Group
Mar 3, 2015 at 10:34 AM
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Alibaba Group Holding Ltd (NYSE:BABA) touched a record low of $81.42 earlier -- and was last seen down 2.3% at $82.07 -- after Taiwanese officials told the company to leave the country over alleged legal violations. Specifically, regulators took aim at the e-commerce firm for registering as a Singaporean company rather than a Chinese one -- circumventing necessary approvals from Taiwan's Investment Commission. Amid this consternation, options activity has heated up.

Diving right in, BABA's total options volume is running at more than twice the average intraday rate. Most active is the weekly 3/6 80-strike put, which is seeing both buy-to-open and sell-to-open activity. In short, the buyers anticipate the stock will breach the round-number $80 mark by week's end -- when the series expires -- while the sellers expect the same level will serve as a short-term foothold.

Longer-term traders are anticipating a rebound in the shares. Specifically, speculators are buying to open BABA's July 87.50 call, in the hopes the equity will topple $87.50 by July options expiration. The stock hasn't explored this territory since Feb. 19.

While BABA's been a technical laggard in recent months -- underperforming the broader S&P 500 Index (SPX) by more than 25 percentage points over the last 60 days -- the brokerage bunch has maintained its confidence. Specifically, 21 of 22 covering analysts have doled out "buy" or better ratings, compared to just one "hold." Unless BABA reverses course soon, this extreme optimism could give way to a round of downgrades, exacerbating selling pressure.

Elsewhere, while Alibaba Group Holding Ltd (NYSE:BABA) bottoms, rival JD.Com Inc (NASDAQ:JD) is surging on a revenue beat. At last check, JD shares were 3.2% higher.

 

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