Calls Remain Popular on JD.com, Alibaba Stocks Despite Trade Headwinds

Call volume has more than doubled put volume in recent weeks on JD and BABA

Patrick Martin
Jul 2, 2018 at 2:55 PM
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U.S.-listed Chinese stocks have been in focus lately, as trade tensions continue to rise. JD.com Inc (NASDAQ:JD) and Alibaba Group Holding Ltd (NYSE:BABA) are two such names trading lower today-- likely putting recent options traders on edge.

In fact, both stocks popped up on Schaeffer's Senior Quantitative Analyst Rocky White's list of 20 stocks that have attracted the highest options volume during the past 10 trading days. Call traders have been especially active in JD and BABA options pits the past two weeks, with call volume handily doubling put volume in both instances. (Names highlighted in yellow are new to the list.)

MAO July 2

JD.com Stock Falling Back From Early Summer Peaks

While JD calls saw heavy trading, others targeted the the July 41 put, which saw a notable increase in open interest over this two-week time frame, with more than 12,000 contracts added. Data from the major options exchanges shows significant sell-to-open activity here, indicating options traders are expecting JD stock to settle above $41 at the close on Friday, July 20 -- when the front-month options expire.

Regardless of direction, those wanting to bet on more third-quarter upside for JD stock may want to consider doing so with options. The security's Schaeffer's Volatility Index (SVI) of 34% ranks in the 18th percentile of its annual range, meaning short-term options are pricing in relatively low volatility expectations at the moment.

JD.com stock is currently down 0.9% to trade at $38.62. The Chinese e-commerce name has now given back 7% year-to-date and fell an annual low of $34.76 on May 31. A subsequent rally in early June took the shares all the way to the $44 level, followed by a prompt pullback to their 50-day moving average. Longer term, the security is trading just below its year-over-year breakeven point.

JD Daily Stock Chart

Options Traders Banking On A Summer BABA Rally

Looking at Alibaba, the September 205 call saw the biggest increase in open interest over the past two weeks, adding nearly 16,000 contracts. Data shows mostly buy-to-open activity at this strike. Those buying the calls are expecting BABA stock to make a summer push higher over the next two months.

Meanwhile, BABA has racked up a Schaeffer's Volatility Scorecard (SVS) of 75 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.

At last check, Alibaba stock was down 0.3% to trade at $184.93. Last Wednesday, the shares breached their 200-day moving average for the first time since early May. BABA has now given back 12.7% since racing to a record high of $211.70 on June 5. Nevertheless, the security has still added 30% in the past 12-months, and all 21 of the brokerages covering the Chinese e-commerce giant rate it a "buy" or "strong buy." 

Daily Stock Chart BABA


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