SoftBank Slaps Alibaba Group Holding Ltd (BABA) Option Bulls

SoftBank said it will sell at least $7.9 billion worth of Alibaba Group Holding Ltd (NYSE:BABA) shares

by Karee Venema

Published on Jun 1, 2016 at 10:06 AM
Updated on Jun 2, 2016 at 10:40 AM

Alibaba Group Holding Ltd (NYSE:BABA) is plunging this morning, after Japan's SoftBank said it would sell a minimum of $7.9 billion worth of BABA shares -- dropping its stake in the firm to roughly 28% from 32.2%. The move comes as SoftBank attempts to recoup some of the financial damages incurred by its majority ownership of Sprint Corp (NYSE:S). At last check, BABA stock was off 3.6% at $79.07 -- and Tuesday's options traders are likely kicking rocks.

Specifically, BABA's weekly 6/3 80- and 82-strike calls saw the most action yesterday, with more than 25,600 contracts collectively on the tape. It look as if some of the action was of the buy-to-open kind, meaning speculators were betting on the stock to settle north of the respective strikes at this Friday's close, when the weekly options expire. Regardless of where BABA finishes the week, though, the call buyers' losses are limited.

From a wider sentiment perspective, BABA options traders have shown a growing affinity for long puts relative to calls of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio has jumped to 0.87 from 0.59 in the past two weeks, and now ranks in the bearishly skewed 88th annual percentile.

Additionally, BABA's Schaeffer's put/call open interest ratio (SOIR) of 0.79 rests higher than 74% of all comparable readings taken in the past year. In other words, speculative players are more put-heavy than usual toward the stock, among options slated to expire in three months or less.

Technically, Alibaba Group Holding Ltd (NYSE:BABA) has been gaining ground since bottoming at a year-to-date low of $59.25 in mid-February, up 33.5%. However, this rally has more recently stalled out in the $80-$82 region -- an area that's served as both support and resistance in BABA's nearly two-year history.

BABA weekly chart

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