Notable Options Trading on Alibaba, Disney Stocks

BABA call options have been popular in recent weeks, but traders are split on DIS shares

May 15, 2017 at 1:26 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two names of notable interest are Chinese e-commerce stock Alibaba Group Holding Ltd (NYSE:BABA) and blue chip Walt Disney Co (NYSE:DIS). Here's a quick look at how options traders have been placing their bets on shares of BABA and DIS.   

most active options

Options Traders Bet on BABA Stock Staying Hot After Earnings

Alibaba stock earlier hit a record high of $121.10, and was last seen 0.4% higher at $120.83. This brings the shares' year-to-date advance to an impressive 37.6%, and options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) seem to be betting on more upside for Alibaba after earnings later this week. BABA has a 10-day call/put volume ratio of 3.10 across these exchanges, which is higher than 89% of readings from the past year. 

Looking closer, the most popular Alibaba option during this time frame, based on open interest added, was the weekly 6/23 130-strike call, where 12,500 contracts were added. If these positions were bought to open, traders are betting on BABA extending its run into all-time-high territory in the weeks ahead, topping $130 by expiration on Friday, June 23. Meanwhile, the 120-strike call also saw heavy action in the traditional June series, while other traders were targeting the October 140 call. 

It's possible some short sellers are using call options to hedge their positions on Alibaba, though. Specifically, short interest represents 14% of the stock's float, equating to 12 days' worth of buying power, based on BABA's average daily volume. Alibaba is scheduled to report earnings before the open on Thursday. 

Options Traders Split on Fading Disney Stock

Elsewhere, Disney stock is slightly lower today at $109.67, after Deutsche Bank lowered its price target to $125 from $130. DIS shares hit an annual high of $116.10 in late April, but they've struggled in recent weeks, and gapped lower after a disappointing earnings report last week. While call buying has remained more popular on an absolute basis at the ISE, CBOE, and PHLX, the stock's 10-day put/call volume ratio of 0.87 actually ranks in the 72nd annual percentile, hinting at a slightly bigger-than-usual preference for puts over calls. 

Based on open interest changes, the June 115 call was the most popular option during the past two weeks, with more than 16,300 contracts added. Data from the major options exchanges confirms an almost perfect split between sell- and buy-to-open activity at this strike. For those selling the option to open, they're betting on Disney stock holding below this level over the next month, while buyers are hoping for DIS stock to rebound back atop $115 in the short term. 

Data suggests it's a better time to buy Disney options rather than sell them, whether it's calls or puts. This is based on the stock's Schaeffer's Volatility Index (SVI) of 13%, which ranks in the low 10th percentile of its annual range, following the post-earnings volatility crush. In other words, low volatility expectations are being priced into short-term DIS options, from a historical volatility standpoint. 

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