2 Chinese Tech Stocks With Attractive Options

Shares of VIPS and BABA are down slightly on trade uncertainties

Jun 19, 2018 at 2:12 PM
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Escalating trade tensions with China are weighing on U.S. stocks today, and China-based tech stocks are getting hit particularly hard. However, traders looking to speculate on the tariff merry-go-round with options could consider Chinese e-commerce concerns Vipshop Holdings Ltd (NYSE:VIPS) and Alibaba Group Holding Ltd (NYSE:BABA). Despite the escalating fears of a trade war, both VIPS and BABA sport attractively priced near-term options right now -- and both stocks tend to exceed traders' volatility expectations.

Vipshop Stock Stares Up at Key Level

Vipshop stock was last seen 3.2% lower to trade at $11.29. Since gapping lower in mid-May on weak earnings and guidance, VIPS shares have struggled to overcome the $12.50 region -- home to their stagnating 320-day moving average. What's more, the stock is now staring up at the $11.50-$12 area, too, which is where it landed after a mid-December bull gap, and home to the equity's year-to-date breakeven level.

VIPS stock chart

As alluded to earlier, near-term options on Vipshop remain attractively priced. Although the equity's 30-day at-the-money (ATM) implied volatility (IV) has increased 2.3 percentage points today, the current reading of 43% is still in just the 13th percentile of its annual range. Echoing that, the stock's Schaeffer's Volatility Index (SVI) of 41% is in the fifth percentile of its 12-month range, indicating short-term options are pricing in relatively low volatility expectations right now.

Meanwhile, VIPS has racked up a Schaeffer's Volatility Scorecard (SVS) of 92 out of 100. This indicates that the stock has made bigger moves on the charts in the past year, relative to what the options market had priced in.

Despite the U.S.-China trade tensions, recent options buyers have been picking up VIPS calls at a rapid-fire clip lately. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio stands at 30.5 -- meaning more than 30 VIPS calls have been bought to open for every put in the past two weeks. This ratio is in the 95th percentile of its annual range, underscoring a healthier-than-usual appetite for bullish bets of late.

BABA Stock Set to Breach Recent Support

Alibaba shares were last seen 3% lower to trade at $202.39, set to close beneath their 20-day moving average for the first time since late April. Just last Thursday, on June 14, BABA stock notched an all-time closing high of $210.86. The shares could now test support in the round $200-$201 area, which acted as a ceiling in March and May.

BABA stock chart june 19

As with Vipshop, BABA's near-term options remain a relative bargain. While the security's 30-day ATM IV is up 1.5 percentage points at 27.8% today, it's still in the bottom 25% of its annual range. Likewise, the equity's SVI of 26% is higher than just 10% of all other readings from the past 52 weeks, while BABA sports a lofty SVS of 89 -- suggesting the shares are no stranger to exceeding options traders' volatility expectations.


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