Chinese e-commerce concern Alibaba Group Holding Ltd (NYSE:BABA) has struggled to build off of a rip-roaring 2017 which saw the stock nearly double in value. The company is in the news today after buying up the remaining shares of Chinese food delivery app Ele.me. Although BABA stock is currently down 3.8% to trade at $176.54 amid the massive pullback in tech stocks, it could be time to buy short-term call options on the stock, if history is any guide.
Looking closer at the charts, the security has slowed down since touching a record high of $206.20 on Jan. 31. The pullback has been contained by the 160-day, while the stock has moved within one standard deviation of the rising 200-day moving average. According to Schaeffer’s Senior Quantitative Analyst Rocky White, the three other times BABA stock has experienced similar pullbacks during the past three years it’s averaged a 21-day gain of 6.18%, and has been higher one month later 100% of the time.
There’s plenty of fuel for a short-covering rally, too, should these bearish bettors continue to cover. Short interest fell in the two most recent reporting periods, but there are still more than 122.61 million shares sold short. This accounts for a healthy 10% of BABA’s available float, or 6.8 times the equity’s average daily pace of trading.
In the options pits, long puts have been unusually popular. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 0.63, which ranks in the 100th percentile of its annual range.
What’s more, Alibaba stock sports a Schaeffer’s Volatility Scorecard (SVS) of 90 out of 100. This indicates that BABA has handily rewarded premium buyers over the past year, often exceeding options traders’ volatility expectations.
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