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Option Bulls Circle as Alibaba Group Holding Ltd (BABA) Swings Higher

Alibaba Group Holding Ltd (NYSE:BABA) fell at the open, but was last seen in the green

Sep 12, 2016 at 3:13 PM
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Similar to the broader stock market, Alibaba Group Holding Ltd (NYSE:BABA) started the day lower, but has since swung into the green. After being down nearly 3% as traders digested last Friday's news the company increased its stake in fellow Chinese tech stock Weibo Corp (ADR) (NASDAQ:WB), BABA stock was last seen up 1.5% at $101.10. In the options pits, meanwhile, calls are outpacing puts by a more than 3-to-1 ratio, with a number of speculators taking aim at BABA's end-of-week trajectory.

Specifically, September calls account for eight of BABA's 10 most active options. The stock's September 100 call has seen the most action, with nearly 16,000 contracts on the tape. It looks like some of this action is of the buy-to-open kind, meaning options traders are betting on an extended run north of the century mark through this Friday's close -- when the front-month series expires.

Widening the sentiment scope reveals today's call-skewed session is nothing new in BABA's options pits. 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 of 2.69 ranks in the elevated 88th annual percentile.

What's more, BABA currently sports a Schaeffer's put/call open interest ratio (SOIR) of 0.50. Not only does this show that calls double puts among options expiring in three months or less, but it rests lower than 96% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward BABA.

Drilling down, it looks like most near-term options bulls have set their sights even higher, with peak front-month call open interest of 43,470 contracts located at the September 105 strike. According to the major options exchanges, the bulk of activity here in recent weeks has been of the buy-to-open kind, as traders eye a bigger break out for BABA.

Technically, the shares have been on fire in 2016, up more than 24%. What's more, the stock hit a new annual high of $104.30 last Tuesday. Against this backdrop -- and with a healthy 10% of Alibaba Group Holding Ltd's (NYSE:BABA) float sold short -- it's entirely possible that a portion of the recent call buying is a result of shorts hedging their bearish bets against any additional upside. Regardless, should BABA continue to climb, a capitulation from short sellers could translate into additional tailwinds for the equity.

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