Pre-Earnings Call Buyers Target Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding Ltd (NYSE:BABA) will unveil its quarterly earnings report tomorrow morning

Aug 10, 2016 at 12:09 PM
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Alibaba Group Holding Ltd (NYSE:BABA) has been swinging for the fences in recent months, surging more than 47% off its early February lows. Today, BABA stock hit an annual high of $87.73, and was last seen up 2.4% at $87.26, thanks to a positive earnings reaction for fellow e-commerce concern JD.Com Inc (ADR) (NASDAQ:JD). Meanwhile, with BABA set to take its own place on the earnings stage ahead of tomorrow's open, options traders have been loading up on long calls in the weeks leading up to the quarterly event.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (ISE), and NASDAQ OMX PHLX (PHLX), for instance, speculative players have bought 58,542 call options on BABA, compared to 20,784 put options. What's more, the resultant call/put volume ratio of 2.82 ranks in the 96th annual percentile.

Echoing this call-heavy backdrop is BABA's Schaeffer's put/call open interest ratio (SOIR) of 0.67. Not only does this show that calls outweigh puts among options set to expire in three months or less, but it ranks lower than 63% of all comparable readings taken in the past year. In other words, short-term speculators are more call-skewed than usual toward the stock.

It's a similar set-up in today's trading, with calls crossing at three times what's typically seen at this point in the day -- and outpacing puts by a more than 2-to-1 margin. Pre-earnings traders appear to be purchasing new positions at BABA's weekly 8/12 87.50-strike call, eyeing more upside through this Friday's close, when the weekly options expire.

Outside of the options arena, short interest accounts for a healthy 9.2% of the stock's available float. As such, it's possible some of the recent call buying could be of the protective kind. Regardless, should the shares continue their trek into annual-high-territory, though, shorts could be pressed to capitulate -- which may create additional tailwinds for BABA. In fact, it would take almost two weeks to cover these shorted shares, at the equity's average daily pace of trading.

Historically speaking, Alibaba Group Holding Ltd (NYSE:BABA) has turned in a mixed post-earnings performance, gaining ground in the session subsequent to reporting in four of the past seven quarters. On average, the stock has moved 5.3%, less than the 6.4% the options market is pricing in this time around.

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