China-Based Tech Stock Just Doubled Put Traders' Money

The security was sitting at fresh lows just three weeks after our put recommendation

Digital Content Manager
Oct 27, 2022 at 3:28 PM
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Subscribers to our Schaeffer's PowerTrend service scored a 110% profit with our recommended Alibaba Group Holding Ltd (NYSE:BABA) December, 2022 95-strike put in less than one week. We'd like to take a moment to share our reasoning for initiating this long position.

When we made our recommendation on Wednesday, Oct. 2, the security was staring up at resistance from the 40-day moving average, which sat just overhead as it started to trend lower. 

Meanwhile options players were still very call-heavy, per the stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stood at 2.40 at the time. The stock also sported a front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.62, which was sitting at low levels that were vulnerable for BABA in the past. 

This bullish sentiment was apparent in the options pits, too, where there were an overwhelming number of "buy" and "strong buy" ratings, despite the equity's 29% year-to-date decline. Short sellers, on the other hand, has already started building their positions and winning. We noted that rallies could be used to build even more positions, as long as they're profitable. 

As we predicted, the equity did begin running lower right after our recommendation, not even getting the chance to tussle with its 40-day moving average. Tightening restrictions on semiconductor exports from China battered tech stocks from the region mid-month, and the equity continued to chop lower as a result. BABA's been hit with a few bearish analyst notes in the weeks since our recommendation as well, allowing our subscribers to bag a profit on the security in just three weeks. 

baba oct 27

 

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