While the selloff in the equity markets continues, Alibaba Group Holding Ltd (NYSE:BABA) seems to be oblivious of the panic in at least some ways. The stock is up about 1.54% as of now, while Dow Jones is down about 0.29%. In an article on Barron’s by Steve M. Sears, there is a clue as to why Alibaba is still standing on the hype that was created during its IPO, rather than reflecting the global macroeconomic weakness in its stock price.
Also, it’s not the equities markets that corroborate the underlying cause of Alibaba Group Holding Ltd (NYSE:BABA)’s stock strength, namely its hype. Instead, it’s the options market. By having a peek into where investor’s are expecting Alibaba’s price to be in future we can better understand the company’s daily stock charts, which are an anomaly of sorts.
The activity in Alibaba Group Holding Ltd (NYSE:BABA)’s options is appalling. Sears mentioned that out of 3,600 listings on the options exchange Alibaba’s options are number 12 in terms of volume traded, despite the fact that they only had their debut on 29th September this year.
The general direction of this options trading on the underlying Alibaba stock seems to be very bullish. Sears noted that the volume of the call had nearly always led the put options. With a cursory look at the bets that are placed on Alibaba Group Holding Ltd (NYSE:BABA)’s stock and were mentioned in the article, investors view the stock to trade between $95 and $105 by January next year. Before the current market turmoil that might have been possible, but right now that’s a very tough ask.
Readers should keep in mind the reason why I am saying it is all speculation and lingering post IPO hype is because there is a dearth of concrete financial available on the company as of now. The first earnings report, according to Sears, is only expected somewhere between Nov. 17 and 21. Moreover, we should keep in mind that Alibaba Group Holding Ltd (NYSE:BABA) was denied a listing in the Hong Kong Exchange because its corporate structure was not in line with the Exchange’s standards. Who knows what skeletons the company has in its closet.
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