Alibaba Group Holding Ltd Stock To Drop BY 30% : Traders
One trader bets on a 35% drop in Alibaba’s stock price, according to CNBC.
Alibaba Group Holding stock recovered slightly during trading session on Friday, rising 1.41% and reaching $79.04. The increase came as an important breather for shareholders, who saw their shares touching all time low earlier last week. While, a trader thinks the recovery is short term and the stock might drop by over 35% by September, as reported by CNBC.
After the sell-off in stock markets at China, the company shared reached a new 52 week low of $76.21 earlier last week. As a result, volumes increased considerably more than the 31 day average. Significantly, option put volume was witnessed rising 4x its daily average.
A put option fundamentally allows traders the right of selling security at a specific time period and date. This will help the traders to hedge their position against the price risk in the future.
A trader purchased around 12,000 of puts on baba stock for the month of September. The trader purchased 50 strike puts at $0.15 each. The plan shows that the trader bet over $18,000 on the prediction of 35% decline in stock price. Thus, he thinks the share price is going to drop to $49.85 till the option expires.
Dan Nathan, CNBC options expert & contributor explains, “A lot of [Wednesday’s] volume came in these ways out of the money puts. The options market is implying that this trade basically has zero probability of being in the money.”
He added, “We know September is the one-year anniversary of the IPO and 1.4 billion shares are coming off lockup so maybe this is a trade hedging for a big move to the downside. He cautioned that the aggressive put purchases are “not the right protection play if you are long Alibaba.”
Stock performance of the company, since its IPO last September, paints a dark picture, for shareholders who are short on the shares. Baba stock has tumbled over 15% since the company went public. However a he increase was seen in November last year, with the stock reaching a 52-week high of $120, shares have declined by more than 30% since then. YTD, the company’s shares are down by approximately 24%, with $195.82 billion of market capitalization.
Significantly, however, most of the analysts and investors are still comparatively bullish on the stock. Shares trade at a price to earnings ratio of 48.85x, signifying that shareholders expect higher growth.
Dick Wei analyst at Credit Suisse tags Alibaba stock with an Outperform rating, and $114 price target.
