Alibaba Group Holding Ltd (BABA) Bearish Bets On The Rise Ahead Of Lockup Expiration

Alibaba Group Holding Ltd (NYSE:BABA) options market is heating in the wake of the stock touching record lows in the market having clocked record highs of $120 a share after IPO. Options volume are running more than twice according to CNBC’s, Dan Nathan, who attributes the increased bearish bets on the stock to the imminent lock-up stock expiration.

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“Massive rally of 5% today and you have to think all of this action has to do with this impending lock-up expiration of 429 million shares that is coming on March 18. That is more than the IPO from September of 268 million shares,” said Mr. Nathan

Nathan reiterates that the current lows of $80 share is where Alibaba Group Holding Ltd (NYSE:BABA) finds some form of support having been on a downward trend amidst an increase in negative sentiments and news. The analyst notes that one of the trades that stood out when the stock was trading at $82 a share was the purchase of 3500 of the March 74 puts that broke even down 10%.

The bearish bets on Alibaba Group Holding Ltd (NYSE:BABA) suggest that despite the slight bounce back experienced on Wednesday the stock might sink even further nearing the lock-up expiration event When more shares will be available into the market. The stock according to the options traders could breach the $80 mark in the coming days when the series expires.

“[..] It gives you a sense of what some traders are thinking about into this expiration and this is a chart year to date. Whereas if you look at this bounce right here it is just telling you that things have kind of come unhinge in front of this deal. I am just going to make one more point why traders are maybe willing to commit long premium, and directional bets on BABA and $5 the price of options is relatively low here,” said Mr. Nathan.

Long-term traders, however, expect Alibaba to bounce back despite the stock being laggard in recent months seen by it losing nearly 20% from the start of the year.

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