Daniel Bustamante | Options Coach
People love to hate the stock Alibaba and if we're being honest I used to be one of them. But what I know from twelve plus years in this business is that you can't fall in love or hate any stock. At the end of the day it's just an asset and that asset revolves around the oldest principal in commerce: supply & demand. So the question we ask is if Alibaba is set for new highs? My verdict: Yes.
Now I am not here to convince you to buy this, I'm already long the stock with various options strikes, but, I do want to share why this could be trading to all-time highs in the very near futures.
The price chart.
It's no secret that price action trading and price charts are what many professionals use. Not only for market analysis but for entries and exit signals to assist in a a 'cleaner' exit or entry of the asset. This price chart is ripe on a weekly time frame. What I mean by that is the candle this week opened up 'strong' - which, if you're new to this may seem subjective. Then we look at the all-time high, $211.70 - we tested it last week, failed and now are on our way to test again with a likely breakthrough.
As a trader, I want to (in this case - not all) position myself in this trade before the breakout, which I did.
(click on the chart to expand)
The Call Option Flow.
Call options flow is not usually something I care to look at too much. If a stock is going to rally or sell off the flow is usually there. But in some cases looking at the flow is just an additional piece of information. Now I want to stress this before moving on - The most important thing for me is the price chart. There are simply too many indicators, trading books and ideas of why a stock should or should not move. I've seen checklists for stocks where 25 things have to occur before placing a buy, it's ridiculous. And if I'm being honest, most people that need the 25 checklist are afraid of losing even $100 and in that case you have no business in this business.
That being said. The options flow on this stock the past few days has been highly unusual. But what do I mean by that? Let me use the image below with about a $1 million call 'sweep' of the September $225 calls.
Click to enlarge. Then notice the highlighted yellow items. Those are 'sweeps' meaning it's one order that took the entire available position. That is usually larger trader or maybe even an institution making this move. In fact, this is about a $1 million bet on this stock rising, though, in the world of Wall Street a $1 million bet is relatively 'small', crazy, I know.
That combined with a lot of volume on this weeks options, the weeklies, right off the open on Monday tells you that traders are positioning for a move higher. Now really, this is not why I took the trader or why I think it's going higher but it certainly helps the bullish case.
So as we sit here after the market, I believe we'll see a move to $220-$230 in relatively short order. I hope this helps in your investing and if you have questions please feel free to reach out.