Options Traders Bet On More Record Highs From Facebook, Alibaba Stocks – Schaeffers Research (blog)

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Shares of tech stocks Alibaba Group Holding Ltd (NYSE:BABA) and Facebook Inc (NASDAQ:FB) are trading at record highs today, thanks to broad-market tailwinds. What’s more, options data suggests traders are betting on even higher highs for BABA and FB. Below is a brief breakdown on recent options trading activity and price action from Alibaba and Facebook. 

Alibaba Stock Rewards Call Buyers, Pounds Shorts

Alibaba stock is up 2% today at $148.73, earlier hitting a record high of $148.77. This puts the shares’ year-to-date rally at 69%. Calls and puts are both trading at an accelerated pace today, with overall option volume running in the 95th annual percentile. A number of strikes are seeing heavy volume, but the top spot belongs to the July 150 call, where a mix of buying and selling seems to be taking place.

Further down the list are the weekly 7/14 148- and 150-strike calls, and it looks like much of the action here is of the buy-to-open variety. This means options traders are betting on BABA stock extending its run into record-high territory through Friday’s close, when the contracts expire.

Call buying has long been a popular strategy among Alibaba options traders. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 2.60, meaning long calls have almost tripled long puts. Either way, premium on near-term BABA options is relatively muted at the moment, according to its Schaeffer’s Volatility Index (SVI) of 25% — ranking in the bottom one-third of annual readings. 

It’s worth noting that not everyone is sold on Alibaba stock. In fact, after a 9.4% increase in the last two reporting periods, short interest on the equity is now at an all-time high. Based on average daily trading volumes, it’d take these bears almost a week to cover their positions. Plus, this suggests some recent call buying could be from shorts using options to hedge their positions. 

Options Traders Target $160 Level for Facebook Stock

Facebook stock has added 2% today to trade at a record high of $158.31. Year-to-date, FB shares are up 37%, with recent pullbacks contained by their 80-day moving average. Meanwhile, call volume is at two times the pace expected for today, and the weekly 7/14 157.50-strike call is most popular. Data points to buy-to-open activity here, so traders are betting on more gains from Facebook through week’s end. 

Buy-to-open activity has also been detected at the 160 strike in the weekly 7/14 series, the traditional July series, and the August series. So there’s clearly an expectation for FB shares to extend their upside in the coming days and weeks. 

Like BABA, call buying is nothing new for Facebook. The stock’s 50-day call/put volume ratio at the ISE, CBOE, and PHLX stands at 2.03 and ranks in the 87th annual percentile. Also similar to its tech peer, it seems to be an opportune time to speculate on FB stock with short-term options; its SVI of 19% sits in the low 22nd annual percentile.