Options Traders Active as Alibaba Group Holding Ltd (BABA) CEO Ma Meets Trump

Alibaba Group Holding Ltd (BABA) CEO Jack Ma just had a "great meeting" with President-elect Donald Trump

by Alex Eppstein

Published on Jan 9, 2017 at 1:51 PM

Alibaba Group Holding Ltd's (NYSE:BABA) shares and options are both heating up, as founder Jack Ma met with President-elect Donald Trump about the Chinese company's plans to expand into the U.S. Trump described the discussion as "great," while Ma said that the focus of BABA's expansion -- not to mention, job creation -- would be the Midwest.

At last check, the e-tail stock was up 0.9% at $94.73, after earlier being rejected in the $95-$96 area. In fact, huge call open interest of nearly 34,000 contracts resides at the January 2017 95 strike, while $96 served as a ceiling in late November. A rejection here could put the stock back on its longer-term trajectory lower, relative to its late-September highs near $110.

As alluded to, BABA call options are flying off the shelves at more than double the expected intraday pace. The $95-$96 level remains in focus, too, as four of the five most active options are the weekly 1/13 95- and 96-strike calls, as well as the January 2017 95- and 96-strike calls.

This echoes the historical trend toward call options seen at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, during the past 10 trading days, speculators have bought to open twice as many calls as puts. Of course, some of this may have been motivated by a desire among short sellers to hedge, considering roughly one-tenth of Alibaba's float is dedicated to those bearish bets.

For those looking to place short-term options bets on the stock, now is a great time. BABA's Schaeffer's Volatility Index (SVI) of 23% rests below 94% of comparable readings from the last year, hinting at historically low volatility expectations. Not to mention, the stock's Schaeffer's Volatility Scorecard (SVS) of 90 suggests the shares have tended to make larger-than-anticipated moves in the past year, relative to what the options market has priced in.

As described earlier, despite today's positive price action, Alibaba Group Holding Ltd (NYSE:BABA) could have trouble overcoming historical and options-related resistance. If the stock starts retreating again, it could spell trouble, from a contrarian perspective. With 16 of 17 analysts rating BABA a "buy" or better -- and not a single "sell" opinion on the books -- there's ample opportunity for downgrades to drill the shares.

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