While the options market saw higher call activity ahead of the e-commerce company's earnings report Wednesday morning, generally a bullish signal, most of those calls were actually being sold — a sign that traders might be getting cold feet ahead of the results, says Dan Nathan, principal at RiskReversal.com.
The options market is implying a higher-than-usual 5% move in either direction for Alibaba's stock after earnings, so traders likely decided that a 5% move downward wasn't worth the risk, said Nathan, who also appears as a trader on CNBC'sThe most active strikes being sold were the May $180 and June $190 calls, he said, which meant people weren't convinced that the next few months would bring more gains for the $174 stock.
"If you look at it on a five-year basis, that just kind of heightens what we would say is that massive, massive support at that double bottom from late last year," he said. "They better put up some good numbers to keep it around here."
Source: News Formal (newsformal.com)
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