Alibaba Stock Call Options Hot Ahead of Singles Day

Alibaba shares could get a lift, if short sellers continue to cover

Nov 9, 2017 at 11:36 AM
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Alibaba Group Holding Ltd (NYSE:BABA) will host its annual Singles Day this Saturday, Nov. 11 -- the world's largest shopping day of the year. The event grossed a record $17.8 billion in sales last year, easily surpassing Amazon's Prime Day. While the shares are down 1.5% today to trade at $183.10, it looks like options traders are betting a Singles Day boost will send BABA stock barreling to new highs.

At last check, 51,553 calls and 27,756 puts had changed hands -- 1.3 times what's typically seen at this point in the day, and total options volume pacing in the 90th annual percentile. Weekly 11/10 options are also hot, with strikes in this soon-to-expire series accounting for three of BABA's five most active options.

Traders expecting BABA to stay above its current perch through tomorrow's close appear to be selling to open the weekly 11/10 180-strike put and buying to open the 182.50-strike calls. Those betting on the shares extending today's decline may be initiating new positions at the weekly 11/10 182.50-strike put.

However, the November 200 call is most active, and it looks as if new positions are being purchased here. If this is the case, the goal is for BABA to topple the round $200 mark by expiration at next Friday's close.

More broadly, this front-month strike has been popular in recent weeks, along with the November 195 and 210 calls. All told, these calls have seen almost 40,800 total contracts added -- and are now home to almost 64,000 contracts, collectively. Data from the major options exchanges points to a mix of buy- and sell-to-open activity, with those purchasing the calls eyeing bigger gains, and those writing the calls setting a short-term ceiling.

Looking at the charts, the highest Alibaba stock has ever traded was $191.22, touched one week ago following the Chinese internet name's strong earnings report and upwardly revised forecast. This highlights the security's longer-term trend, with BABA shares more than doubling in value on a year-to-date basis -- and a recent pullback quickly contained by the rising 60-day moving average.

A continued round of short covering could help BABA shares resume its positive momentum. While short interest is down from the July 15 record high of 140.81 million shares, there are still 133.94 million shares sold short. This represents 11 days' worth of pent-up buying demand, at Alibaba stock's average daily pace of trading.

 


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