Caixin Buzz Fails to Deter Alibaba Group Holding Ltd (BABA) Option Bears

Alibaba Group Holding Ltd's (BABA) financial arm is in talks to buy a stake in Caixin Media

by Alex Eppstein

Published on Mar 2, 2016 at 10:49 AM

Alibaba Group Holding Ltd (NYSE:BABA) options are hot this morning, amid reports the Chinese e-tailer's finance arm, Ant Financial Services Group, has had discussions about taking a stake in Caixin Media. (Meanwhile, rumors continue to swirl about another potential acquisition.) By the numbers, over 18,000 BABA contracts have changed hands this morning.

Digging deeper, the most active BABA option is the in-the-money July 77.50 put, which is seeing buy-to-open activity. By purchasing these puts at a volume-weighted average price (VWAP) of $9.61, traders foresee the stock tumbling below $67.89 (strike less VWAP) by July options expiration. The shares explored territory south of that breakeven level as recently as Monday, but are currently up 0.2% at $71.03.

In-the-money BABA puts have been popular recently. During the past 10 sessions, among the strikes seeing the largest increases in open interest were the March 85 and April 77.50 puts, adding a respective 14,555 and 13,196 contracts. Digging deeper, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates nearly 2,400 contracts were bought to open at the lower-strike put during the last two weeks.

While BABA's options pits certainly show signs of pessimism, the near-consensus opinion among brokerage firms is positive. Specifically, 16 of 19 analysts rate the stock a "buy" or better, with not a single "sell" rating to be found.

Technically speaking, Alibaba Group Holding Ltd (NYSE:BABA) has been muscling higher since its February lows in the $60 area. However, the stock is approaching its 120-day moving average, which acted as resistance following a bearish gap in early January, and also ushered the shares lower in mid-2015.

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