Alibaba Group Holding Ltd (BABA) Option Players Predict Single's Day Slide

Alibaba Group Holding Ltd (BABA) option bears are active as Single's Day kicks off in China

Nov 10, 2016 at 1:53 PM
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Single's Day (11/11) -- or what is anticipated to be the largest single-day shopping event in history -- has already kicked off in China, with analysts expecting record sales. Among the stocks gearing up for the shopping frenzy is Chinese e-tailer Alibaba Group Holding Ltd (NYSE:BABA). However, while the Dow is racking up all-time highs, BABA is suffering a post-election decline with many other Chinese stocks, such as JD.Com Inc(ADR) (NASDAQ:JD) and Baidu Inc (ADR) (NASDAQ:BIDU), which may come under fire with Donald Trump's proposed anti-Chinese policies. With BABA already down on the charts today, option players are keeping a bearish eye on what's to come tomorrow.

BABA is currently 2.9% lower at $93.84, and down nearly 15% since touching an all-time peak in September. BABA closed below its 80-day moving average yesterday for the first time since July, and is currently sitting below that trendline today, with a brief breakout attempt swiftly rejected.

BABA 161110

BABA options are crossing at an accelerated clip today, about 1.8 times the norm, with calls leading puts 74,000 to 55,000. The weekly 11/11 97-strike put is BABA's most active option today, with 5,535 contracts crossing the line, and possible buy-to-open action detected. These buyers are betting that BABA will extend its retreat below the $97 level by the time the options expire tomorrow afternoon.

Widening the scope, though, calls have been popular in recent months, with BABA's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 2.62 in the 85th percentile of its annual range. However, some of this call-buying action could be short sellers hedging their bets, especially since BABA's top front-month open interest position is the deep out-of-the-money November 115 call. Although BABA's short interest dropped 2.9% in the last reporting period -- which did little to benefit BABA shares -- shorted shares now account for 11% of BABA's float, which would take almost nine days of trading to cover, at the stock's average daily pace.

Analysts seem to maintain their optimism for the stock, however. Currently, 16 of 17 analysts rating the firm say Alibaba Group Holding Ltd (NYSE:BABA) is a "buy" or better. In fact, Needham & Company today reiterated a "buy" rating on BABA, expecting 36% year-over-year growth from last year's Singles Day -- after which BABA shares lost 5% in the next two sessions. A disappointing Singles Day or a continued pullback could leave BABA at risk of negative analyst attention.

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