Alibaba, U.S. Steel Options Bulls Undeterred By Tariff Uncertainty

Many are speculating on upside for BABA and X stocks

Managing Editor
Mar 26, 2018 at 12:35 PM
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Chinese e-commerce monster Alibaba Group Holding Ltd (NYSE:BABA) and steel stock United States Steel Corporation (NYSE:X) have been in the news following President Trump's trade ambitions. Amid the drama, weekly options volume for both stocks has been hot in recent weeks.

Both BABA and X stocks landed on Schaeffer's Senior Quantitative Analyst Rocky White's list of the 20 stocks that saw the heaviest weekly options volume over the past 10 days. Names in yellow are new to the list since the last time the study was run. As you can see, call volume handily outweighs put volume for both Alibaba and U.S. Steel in recent weeks.

MAO March 26

Options Bulls Banking On Return Above $200 For BABA Stock

Looking at Alibaba, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms a substantial call bias, with long calls more than doubling puts in the past 10 days. During this time the weekly 3/29 200-strike call has seen notable attention, with data from the major options exchanges indicates a mixture of buy-to-open activity and sell-to-open activity at this strike. Those buying the calls are wagering on a strong rally from BABA stock in the coming months, while those writing the calls see the $200 level as a short-term ceiling. 

Alibaba stock sports a Schaeffer's Volatility Scorecard (SVS) of 91 out of 100. This indicates that BABA has handily rewarded premium buyers over the past year, often exceeding options traders' volatility expectations.

At last check, the security was trading up 2.8% at $186.35. The shares have added 72% year-over-year, and any pullbacks lately have been caught by their supportive 160-day moving average.

A short squeeze could help nudge BABA stock higher in the short term. Short interest recently fell to 122.77 million shares, the lowest point since December. However, this still represents 10% of BABA's total available float and nearly seven days of pent-up buying demand, at the stock's average daily trading volume.

Calls Remain Popular For Struggling U.S. Steel Stock

As for U.S. Steel, options traders are also call-heavy, evidenced by the stock's 10-day call/put volume ratio of 2.49 at the ISE, CBOE, and PHLX, which ranks in the 70th percentile of its annual range.

Digging deeper, the weekly 3/29 35-strike call has seen notable attention. Data from the major options exchanges indicates predominately buy-to-open activity at this strike, showing options traders are banking on X stock to gain in the coming week, with the contracts set to expire at Friday's close. 

However, despite the appetite for calls, X has a 30-day implied volatility (IV) skew of 7.3%, ranking in the 89th annual percentile. This means volatility expectations priced into call options are actually much lower than normal when compared to puts.

On the charts, U.S. Steel stock is up 1.9% to trade at $34.36. However, the equity has struggled since touching a six-year high of $47.64 on March 1, shedding 21% this month and dipping below its formerly supportive 80-day moving average. A short-term rally may be in the cards though. At Friday's close, X sported a 14-day Relative Strength Index (RSI) of 30 -- landing in oversold territory.


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