Alibaba Group Holding Limited (BABA) Call Buyers See a Quick Bounce

Alibaba Group Holding Ltd's (BABA) March 84 call is in focus today

by Karee Venema

Published on Mar 9, 2015 at 10:53 AM
Updated on Apr 20, 2015 at 5:32 PM

Call players have set their sights on Alibaba Group Holding Ltd (NYSE:BABA) in recent months, as evidenced by the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.78. Echoing this is BABA's Schaeffer's put/call open interest ratio (SOIR) of 0.76, which suggests call open interest outweighs put open interest among options set to expire in three months or less.

Today, calls are trading at a 1.2 times what's typically seen at this point in the day, and are outpacing puts by a more than 2-to-1 margin. Most active is BABA's March 84 call, with all signs suggesting new positions are being purchased. By buying to open the calls, speculators are gambling on a move north of $84 by next Friday's close, when front-month options expire.

What's surprising is that this amount of optimism is levied toward a stock that's surrendered 30.3% since topping out at a record peak of $120 in mid-November. Pressuring the shares lower has been their 20-day moving average -- a trendline that showed its strength last week when it swiftly rejected BABA's rally attempts. The equity is extending this downward trajectory today, off 0.9% at $83.69, after Credit Suisse shaved its price target by $1 to $112 (but maintained an "outperform" rating).

Daily Chart of BABA Since November 2014 With 20-Day Moving Average

On the fundamental front, all eyes will be on Alibaba Group Holding Ltd (NYSE:BABA) next Wednesday, March 18, when the Big Board freshman's lock-up period expires. Meanwhile, Yahoo! Inc. (NASDAQ:YHOO) -- one of BABA's biggest pre-IPO stakeholders -- is garnering some attention today, after Starboard Value LP sent a letter encouraging the company to continue to create value for shareholders. In late January, YHOO announced it would spin off its BABA stake into a separate investment company. YHOO is down 0.8% at last check.


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