Is Lack Of Supply The Reason Why Alibaba's Stock Is Riding High?

Alibaba Group Holding Ltd BABA has had a wonderful run since its IPO. However, according to CNBC’s Dan Nathan, a lot of that has to do with the outrageous demand of Alibaba shares among the institutional investors. Nathan recently reported on fresh supplies of Alibaba shares about to hit the markets in the near future and also revealed a low-risk option trade for traders who are bullish on the stock.  

 

“The stock has traded particularly well off-late since they reported that first quarter of earnings as a publicly traded company, but I think it’s really important to know that lock-up, there is going to be a lot of overhang coming. There is a short one, a small one coming next month, I think a few million shares, which isn’t really substantial if you think they just did an IPO of 368 million shares, but I think when you looking out a little bit farther, when you get into March and in the New Year, they are actually going to unlock 429 million shares […]” Nathan said.

 

Nathan feels that Alibaba’s stock is trading so well because “there are a lot of huge mutual fund complexes out there that think they are going to own this company or this stock for years and years to come and there is a supply-demand issue here, they keep buying it and there is not a tonne of supply.”

 

According to Nathan, traders who are bullish on the stock can play the March 110-150 call spread (buy March 110 call at $11.5 and simultaneously sell March 150 call at $2) on the stock as it limits their loss to $9.5, while they will be in profit once the stock moves above$119.5.

 

Shares of Alibaba were recently trading at $112.18, up 1.29%.