Option Bulls Keep After Yahoo! Inc. and Alibaba Group Holding Ltd

Calls are popular on Yahoo! Inc. (NASDAQ:YHOO) and Alibaba Group Holding Ltd (NYSE:BABA)

by Josh Selway

Published on Feb 16, 2016 at 3:03 PM

Internet stock Yahoo! Inc. (NASDAQ:YHOO) and e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) are both shooting higher today, following the latter firm's new stake in Groupon Inc (NASDAQ:GRPN) -- which sent the discount site's shares soaring. As a result, option traders are bombarding YHOO and BABA. Let's take a closer look at how speculators are positioning themselves today.

At last check, YHOO was up 8.1% at $29.23 -- and on track for its best day in almost two years. Aside from the BABA boost, the stock is benefiting from news that the company will stream Berkshire Hathaway Inc.'s (NYSE:BRK.A) annual shareholder meeting in April. The shares aren't used to this type of outperformance, as they've fallen almost 37% since their annual high of $46.17 in April. What's more, today's pop was contained by YHOO's descending 30-day moving average.  

In the options pits, traders have scooped up almost three calls for each put. In fact, nine of the stock's 10 most active strikes are calls, with the 29 and 30 strikes in the February and March series seeing heavy attention. It's possible traders are opening fresh long positions here, and if so, they're betting on YHOO to settle above the strikes at the options' respective expiration dates of this Friday and Friday, March 18. 

This preference for calls isn't unusual, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Yahoo! Inc. sports a 10-day call/put volume ratio of 2.30. In other words, more than twice as many YHOO calls have been bought to open relative to puts over the past two weeks. 

Call players are also taking on BABA amid today's outburst. Calls account for seven of the stock's 10 most popular options, with the March 72.50 strike taking the top spot. Data from the ISE confirms some buy-to-open activity here, so speculators are betting on the shares to take out $72.50 before back-month option expiration. 

Like YHOO, BABA is no stranger to call-focused speculators. In fact, the e-tailer's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.60 -- an annual low. This tells us that short-term option traders are more call-skewed toward BABA than at any other point during the past 12 months. 

Though when you look at the charts, it's hard to understand this apparent optimism. The stock has added 9.2% today at $66.50, but longer term, it's struggled. Specifically, BABA has trailed the S&P 500 Index (SPX) by 20 percentage points over the past two months. As such, if the stock resumes its downtrend, an unwinding of optimism among option traders could exacerbate selling pressure. 

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