Alibaba Stock Drops 11% After Earnings Miss: An Option Analysis

Alibaba Stock Drops 11% After Earnings Miss: An Option Analysis

Alibaba Group Holdings BABA released earnings before the market open Thursday, missing across the board on EPS (-88%) and revenue (-1.6%).

Traders did not take too kindly to the earnings release, as the stock lost over 11% in the session. This is on heavy volume, with over 53 million shares traded today vs. the 10-day average of 18 million shares.

SEE ALSO: Why Alibaba Shares Are Falling Today

On top of the heavy trading today, option traders have been very active in the stock, trading over 741,000 contracts, with approximately 460,000 of them being calls and 281,000 being puts (image below).

Why It Matters: Missing on earnings isn't necessarily a reason in and of itself for the stock to drop so heavily. Yet Alibaba has already missed on earnings this year and is down over 38% year-to-date.

Combine that with such a strong earnings miss, and option traders have been aggressively trading the stock today.

Prior to Thursday, there were about 2.5 million calls and 1.9 million puts for a total of roughly 4.4 million options. Hence, the 742,000 contracts traded today represent a robust 16% increase in the total options.

Of those, approximately 62% were calls, however, the largest short dated calls by volume are for the $145 and $150 strikes, which are below the cash open price.

This suggests that while some of these were punters (retail traders trading cheap OTM calls in hopes of a quick gain), there's a good chance many of these calls were premium sellers (i.e. traders selling calls expecting the price to decline and thus make a quick profit from those calls losing value).

What's Next: The problem for Alibaba is there's not much material open interest or volume below the $140 strike through the Dec. 17 expiry (image below).

This suggests option traders aren't too interested in getting long below $140.

Hence, a weekly close below $140 could force option traders to re-adjust their downside levels as there isn't much option support until around the $105 strike.

Posted In: OptionsMarketsMoversTrading Ideas

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.