Call Volume Accelerates as Alibaba Stock Sells Off

Alibaba earnings are due out this week

May 13, 2019 at 1:15 PM
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Alibaba Group Holding Ltd (NYSE:BABA) stock has pulled back sharply since its early May peak north of $195, and is at risk of closing below its 320-day moving average for the first time in months today. Nevertheless, call traders are flooding BABA's options pits, continuing a recent trend seen among speculators.

In fact, BABA stock showed up on Schaeffer's Senior Quantitative Analyst Rocky White's list of stocks that have attracted the highest options volume during the past 10 days, with names highlighted new to the list. Per the chart below, 916,826 calls have changed hands on Alibaba in the last two weeks, compared to 466,922 puts.

most active stock options volume on may 13

Looking closer, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), call buying has been heavier than usual in recent weeks, relative to put buying. BABA stock's top-heavy 10-day call/put volume ratio of 2.58 ranks in the elevated 83rd annual percentile.

The May 180 call has seen the biggest increase in open interest over this two-week time frame, and data confirms significant buy-to-open activity here. Amid accelerated activity today -- 107,000 calls and 43,000 puts have traded, 1.6 times what's typically seen -- this front-month call is most active, though it's not clear if traders are opening or closing positions.

This elevated options activity comes ahead of Alibaba's earnings report, due before the market opens this Wednesday, May 15. BABA stock has a mixed history of earnings reactions, have closed higher the next day in four of the last eight quarters -- including a 6.3% jump in January. On average, the shares have moved 3.2% in the session subsequent to earnings, regardless of direction, going back to years, with the options market pricing in a bigger 8.6% swing this time around.

As mentioned above, BABA stock's recent trend has been lower, down 4.9% today to trade at $169.20 as U.S.-China trade tensions ramp up. Another loss today would make it six in a row for the Chinese e-commerce concern, its longest losing streak since late December. What's more, the equity is pacing for its first close below its 320-day trendline since late February, and its lowest settlement since Feb. 15.

alibaba stock daily price chart on may 13


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