Alibaba Option Traders Turn Bearish After Stock Slams Into Resistance

It's been reported Alibaba Group Holding Limited BABA is in talks, along with Chinese state-backed companies, to strengthen its cloud computing infrastructure by taking a stake in Unisplendour Corp., a cloud-computing firm.  

The news caused Alibaba’s stock to gap up and make a run into a resistance level at the $212 mark. The move also popped the stock firmly back over a descending trendline it had been grappling with since reaching an all-time high of $319.32 last October.  

When the markets opened Tuesday morning, a number of bullish options traders came in and purchased call contracts of Alibaba. The action was followed by a comparatively larger amount of money spent on put contracts after the stock banged into its upper resistance level and was unable to breakthrough. 

In total, bearish options traders bet over $3.06 million Alibaba’s stock is headed lower over the next weeks and months regardless of whether Alibaba is able to reach a deal with Unisplendour.  

See Also: How to Buy Alibaba Stock

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price. A sweeper pays market price for the call or put option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately. 

These types of option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position. 

The Alibaba Trades: Below is a look at the notable options alerts, courtesy of Benzinga Pro: 

• At 10:21 a.m., a trader executed a put sweep near the ask of 300 Alibaba options with a strike price of $200 expiring on Jan 20, 2023. The trade represented a $927,000 bearish bet for which the trader paid $30.90 per option contract. 
• At 11:11 a.m., a trader executed a put sweep near the ask of 269 Alibaba options with a strike price of $190 expiring on Aug. 20. The trade represented a $58,104 bearish bet for which the trader paid $2.16 per option contract. 
• At 11:11 a.m., a trader executed a put sweep near the ask of 300 Alibaba options with a strike price of $190 expiring on Aug. 20. The trade represented a $65,100 bearish bet for which the trader paid $2.17 per option contract. 
• At 11:13 a.m., a trader executed a put sweep near the ask of 500 Alibaba options with a strike price of $180 expiring on Aug. 20. The trade represented a $60,000 bearish bet for which the trader paid $1.20 per option contract. 
• At 11:13 a.m., a trader executed a put sweep near the ask of 263 Alibaba options with a strike price of $180 expiring on Aug. 20. The trade represented a $31,560 bearish bet for which the trader paid $1.20 per option contract. 
• At 11:14 a.m., a trader executed a put sweep at the ask of 2000 Alibaba options with a strike price of $200 expiring on Sept. 17. The trade represented a $1.37 million bearish bet for which the trader paid $6.85 per option contract. 
• At 12:43 p.m., a trader executed a put sweep at the ask of 206 Alibaba options with a strike price of $210 expiring on Oct. 15. The trade represented a $266,152 bearish bet for which the trader paid $12.92 per option contract. 
• At 1:15 p.m., a trader executed a put sweep at the ask of 430 Alibaba options with a strike price of $200 expiring on Sept. 17. The trade represented a $290,250 bearish bet for which the trader paid $6.75 per option contract. 

BABA Price Action: Alibaba was trading up 2.2% to $210 at publication time.