Alibaba Group Holding Ltd (NYSE:BABA) will be in the spotlight over the next few weeks, with the Chinese e-commerce name scheduled to report fiscal second-quarter earnings before the open tomorrow. Plus, the company will host its highly successful Singles Day on Monday, Nov. 11. Below, we will examine Alibaba's earnings history and how options traders are positioning themselves ahead of the event.
At last check, Alibaba stock is up 1.6% to trade at $187.88, earlier hitting a new record high of $188.88. This is just more of the same for Alibaba shares, which shot higher earlier this week on the back of some bullish analyst attention earlier this week. Longer term, BABA stock has tacked on an impressive 113.8% year-to-date, and has outperformed the broader S&P 500 Index (SPX) by roughly 13 percentage points during the past three months.
Historically speaking, the stock's post-earnings reactions have tended to be positive, with BABA closing higher the next day in six out of the last eight quarters -- including a 2.8% pop in August. On average over this time frame, BABA stock has posted a single-day swing of 3.2%, regardless of direction. This time around, the options market is pricing in a much higher 8.3% move for Thursday's trading, per at-the-money implied volatility data.
Another post-earnings move to the upside could certainly spark a short squeeze. Though short interest has been declining since topping out at a record high 140.81 million shares in mid-July, there are still 133.94 million BABA shares sold short. It would take would take 11 days for shorts to fully cover their positions, at the average pace of trading, representing a major source of buying power that could boost the stock. In the options pits, call buying has dominated the picture. Today, options volume is running at two times the average intraday pace -- on track for the 97th percentile of its annual range -- with calls outpacing puts by a 2-to-1 margin. Digging deeper, the November 190 call is the top trade today, though it's not entirely clear how options traders are positioning themselves here. More relevant, the weekly 11/3 180-strike call is home to peak open interest in the series that expires at this Friday's close. Data from the major options exchanges confirms mostly buy-to-open activity here, confirming a bullish bias among pre-earnings options traders. Meanwhile, Alibaba has a Schaeffer's Volatility Scorecard (SVS) of 90, an elevated reading that suggests it's shown a tendency to make bigger-than-expected moves on the charts over the past year, compared to what the options market has priced in -- a potential boon to premium buyers.