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Alibaba Group Holding Ltd (BABA)’s Fall in Price May Be Just a 7% Astray Paid To Borrow Shares: Joe Ciolli

Alibaba Group Holding Ltd (NYSE:BABA) is actually following the path of Facebook Inc (NASDAQ:FB) as it spiked drastically in the day of the Initial Public Offering, then dropped down steadily for the past three days. Bloomberg’s Joe Ciolli explained why this might have happened and how it is similar to the social website developer’s history. 1

“We saw a 38% spike in the first day so people may be thinking that’s a little bit ridiculous, maybe I want to get on the downside action. So, we’re seeing a 7% astray being paid to borrow shares, which is the first step in the shorting of stock. The 7% we saw after Facebook’s IPO, we all know how that traded immediately after it went public,” said Joe Ciolli.

Alibaba Group Holding Ltd (NYSE:BABA)’s shares are trading at little above $89.1, down almost 6% from their initial price on the market. The main difference in the patterns of pricing for the two giants lies in the fact that Facebook Inc (NASDAQ:FB) saw practically a linear decline for about two days, settled down during the third and then moved on in the same linear fashion  but towards higher values. On the other hand, Alibaba Group Holding Ltd (NYSE:BABA) has a more irregular history of price values, but almost the same trend as mentioned above.

Ingenuity brought people to hedge against Yahoo! Inc. (NASDAQ:YHOO)’s unpredictable future by short-selling Alibaba Group Holding Ltd (NYSE:BABA)’s stock, which favors investors but might create a pessimistic view towards the company.

“So, if someone wants to be constructive on Yahoo!, they still own 16% of Alibaba, he or she might want to borrow Alibaba shares as sort of a hedge to that position,” added Joe Ciolli.

In any case, it’s only been three days of public trading for Alibaba Group Holding Ltd (NYSE:BABA) and it has a long future ahead, so there’s plenty of time to stabilize the price and head it towards new highs.

Disclosure: none
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