Analysts, Options Bulls See More Upside for BABA Stock

This preference for calls over puts is being echoed in today's trading

by Lillian Currens

Published on Nov 4, 2019 at 2:07 PM
Updated on Jun 24, 2020 at 10:16 AM

The shares of Alibaba Group Holding Ltd (NYSE:BABA) are up 2.9% to trade at $181.56, and just hit a one-month high of $182.40 earlier today, following a flurry of analysts notes. At least five brokerages lifted their price targets, including BofA-Merrill Lynch and J.P. Morgan Securities, which raised their estimates to $234 and $235, respectively, overshadowing a singular slashed price target from Stifel to $220. 

The slew of analyst notes comes after Alibaba's Friday earnings report, which revealed better-than-expected revenue on strong performances from its e-commerce and cloud computing businesses. Most analysts are focused on the Chinese firm's reinvestment plan for the second half of 2020. While J.P. Morgan said it expects the plan to have a more moderate effect, Jefferies said the firm thinks the plan could have promising long-term results. 

While Friday's post-earnings session ultimately settled in the red, recent support from its $176 region caught the pullback. The stock moved higher in October, up 5.6% for the month. Now, the equity is squaring up with familiar resistance at the $180 region -- which has sent BABA lower several times in the past few months.

BABA Chart Nov 4

Ahead of Friday's event, options traders were coming out in droves. The stock just 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 in yellow new to the list. In the last two weeks, roughly 773,811 calls have changed hands on BABA, compared to 335,780 puts.

Most Active Options Nov 4

It looks like this preference for calls has reached a fever pitch in recent months.  At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BABA's 50-day call/put volume ratio of 2.54 ranks higher than all other readings from the past year, indicating calls have been bought to open relative to calls at a quicker-than-usual clip.

This bullish activity is being echoed today, too. So far, 261,000 calls have crossed the tape, three times what's typically seen at this point. Most of this activity is surrounding the weekly 11/8 190-strike call, where contracts are opening. This suggests that these traders could be expecting a lot more upside ahead of the contract's expiration this Friday, Nov. 8. 

 

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