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Alibaba Option Trader Makes $2M Bet On 33% Upside

Wayne Duggan
·3 min read

Alibaba Group Holding Ltd - ADR (NYSE: BABA) shares closed up 5.5% on Tuesday, and at least one large option trader is betting Alibaba will be back above $300 by this time next year.

The Alibaba Trades: On Tuesday morning, Benzinga Pro subscribers received dozens of option alerts related to unusually large Alibaba option trades. Here are the three largest:

  • At 10:00 a.m., a trader bought 1,005 Alibaba call options with a $300 strike price expiring in Jan. 2022 near the ask price at $20.485. The trade represented a roughly $2.05-million bullish bet.

  • At 10:10 a.m., a trader sold 300 Alibaba put options with a $235 strike price expiring in Jan. 2023 at the ask price of $54.30. The trade represented a roughly $1.62-million bullish bet.

  • At 10:56 a.m., a trader bought 1,000 Alibaba put options with a $215 strike price expiring on Jun. 18 at the ask price of $16.60. The trade represented a roughly $1.66-million bearish bet.

Why It’s Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large sizes of Tuesday’s biggest Alibaba option trades, they could certainly be institutional hedging.

Related Link: How To Read And Trade An Option Alert

China’s Alibaba Crackdown: As strange as it sounds, much of Tuesday’s rally may have to do with a report by CNBC that Alibaba founder Jack Ma is alive and well. China has cracked down on Alibaba and its affiliate Ant Financial after Ma made critical comments about Chinese government regulators back in October.

Ma hasn’t made a public appearance in months, leading some to speculate that the Chinese Communist Party had Ma imprisoned or worse following his comments. While Alibaba is far from out of the woods when it comes to the regulatory crackdown, CNBC reported Ma has simply been lying low and avoiding the public eye since his controversial comments.

  BABA Chart by TradingView new TradingView.widget( { "width": 680, "height": 423, "symbol": "NYSE:BABA", "interval": "D", "timezone": "Etc/UTC", "theme": "light", "style": "1", "locale": "en", "toolbar_bg": "#f1f3f6", "enable_publishing": false, "allow_symbol_change": true, "container_id": "tradingview_b1d06" } );

Benzinga’s Take: The biggest Alibaba option trade of the morning was bullish, but the trading was generally mixed, with many traders taking the other side of the trade.

The $2-million call purchase has a break-even price of $320.49, suggesting 33.5% upside for the stock over the next year.

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