Bulls in the China Shop? Call Buyers Just Piled Into Alibaba


Most stocks have been under pressure lately, but there could be bulls in the China shop.

E-commerce giant Alibaba (BABA) surged 15 percent to $119.62 despite the S&P 500 sinking more than 1 percent. The rally landed BABA at its highest closing price since February 17.

Options traders piled into the 10-June 120 calls, positioning for a move by the end of this week. The contracts initially changed hands for $0.16 to $0.25, and then gained value as the shares worked higher. They were at $0.43 by 11 a.m. ET, $1 by 11:30 and $2 by noon. Premiums proceeded to double again by the final hour of trading.

Volume in the calls surpassed 52,000, dwarfing previous open interest of 1,908. Turnover in the 10-June 115s also spiked, with premiums climbing from $0.50 early in the session to over $7. Over 26,000 traded against open interest of 5,933.

Calls fix the price where investors can purchase a security. They can appreciate more quickly than the underlier when a rally occurs, as happened in BABA yesterday. However they can also expire worthless when stocks drift or decline.

All told, it was a big day for BABA options. More than 1 million contracts changed hands, ranking it fifth in the U.S. market on Wednesday. TradeStation data shows it even surpassed normal leaders like Apple (AAPL) and Advanced Micro Devices (AMD).

Alibaba (BABA), daily chart, with key technical events and indicators.

Changes in China

The immediate catalyst of BABA’s jump was regulatory approval of videogame licenses. But there seems to be a lot more behind the move because authorities in Beijing have taken an increasingly friendly stance toward their companies and financial markets. Consider this sequence of events:

  • March 15: Officials say they’ll cooperate with Washington to support Chinese stocks trading in the U.S.
  • May 20: People’s Bank of China unexpectedly cuts interest rates to support the property market.
  • May 26: Chinese leaders hold an unprecedented videoconference to urge business confidence. Bloomberg reports Wall Street firms including Citi and JPMorgan are increasingly positive on the country.
  • June 6: Indoor dining allowed in Beijing restaurants.
  • June 6: The Wall Street Journal reports officials will lift restrictions on ride-sharing giant Didi Global (DIDI).

Those positive moves could mark an end of a bearish period for the country, when regulatory crackdowns erased more than half the value of most Chinese companies.

If sentiment is turning brighter across the Pacific, the mood remains sour in the U.S.: Companies like Amazon.com (AMZN), Target (TGT), Walmart (WMT), Microsoft (MSFT) and Intel (INTC) have issued weak earnings or negative guidance recently. The Federal Reserve is also aggressively raising interest rates to combat inflation.

This may create an unexpected situation where investors see more opportunity in Chinese stocks than domestic names.

Other companies also gained yesterday. Online retailer company JD.com (JD) rallied 7.7 percent. Bilibili (BILI), a provider of video entertainment, advanced 6 percent and e-commerce player Pinduoduo (PDD) jumped 10 percent.

The group may remain active today with BILI announcing results. Electric-car maker Nio (NIO) is also scheduled to report.

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