Options Bulls Circle Alibaba Group Holding Ltd (BABA)

Could Alibaba Group Holding Ltd (BABA) offer to buy Netflix, Inc. (NFLX)?

by Alex Eppstein

Published on Aug 5, 2016 at 12:40 PM

Alibaba Group Holding Ltd (NYSE:BABA) scored a big legal win yesterday, when a judge dismissed part of a lawsuit filed by several luxury apparel companies, charging the e-tailer of promoting counterfeit products. Meanwhile, ahead of earnings next week, buzz is mounting that the Chinese retail giant may attempt to purchase Netflix, Inc. (NASDAQ:NFLX). Detwiler Fenton responded to the rumors, saying, "Alibaba could easily absorb Netflix" -- though neither company has commented so far.

Despite the buzz, BABA stock has barely budged -- up 0.2% at $84.89. Still, the shares have been impressive in recent months, rallying roughly 41% since their February lows south of $60. Plus, the stock recently took back its year-to-date breakeven mark, and has been ushered higher by its 20-day moving average of late, hinting at double-barreled technical support.

Not surprisingly, options players have high hopes. Yesterday, at least one options trader rolled up his position at the January 2017 90-strike call to the 95 strike -- speculating on even greater gains over the next six months.

During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.54 calls for each put -- a ratio that ranks in the bullishly skewed 87th percentile of its annual range. Of course, with 100 million shares sold short, a portion of these long calls may have been initiated by short sellers seeking an upside hedge.

Analysts have piled on BABA's bullish bandwagon, as well. Sixteen of 18 analysts rate the stock a "buy" or better, with not a single "sell" opinion in sight.

While today's stock move leaves much to be desired, next Thursday morning's earnings report could provide the spark options traders are looking for. In the session immediately following Alibaba Group Holdings Ltd's (NYSE:BABA) last seven reports since going public, the shares have averaged a swing of 5.3% in either direction.

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