Shares of Chinese internet retailer Alibaba Group Holding Limited (BABA) are down over 45 percent in the past year. One trader sees a further decline in shares by mid-2024.
That’s based on the June 2024 $60 puts. With 577 days until expiration, 3,147 contracts traded compared to a prior open interest of 126, for a 25-fold rise in volume on the trade. The buyer of the puts paid $8.48 to make the bet.
Shares recently traded for about $85, so they would need to drop $25, or about 30 percent, for the options to move in-the-money. With a 52-week low of $58, such a move is possible in the next year and a half.
China’s economy has shown signs of slowing, which could lead to a further drop for the internet retailer. Plus, shares just had a big rally off of the lows in just the past few weeks. So a short-term drop looks likely ahead.
Action to take: Investors interested in the company should hold off for now. Weaker data out of China may lead to far better pricing for long-term buyers, and earnings have dropped by 50 percent in the past year.
For traders, the bearish bet looks good in the short term. It could also be a big winner in the long term, given China’s crackdown on big players like Alibaba in recent months. Traders may want to start going short now, and take some profits off of a big down move in the coming weeks, while letting the rest ride out further.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.