September 29, 2014 / 3:48 PM / 3 years ago

Alibaba options active in U.S. trading debut

3 Min Read

Traders work on the floor as they wait for a final price on the Alibaba Group Holding Ltd. initial public offering (IPO) under the ticker "BABA", at the New York Stock Exchange in New York September 19, 2014.Lucas Jackson

NEW YORK (Reuters) - Chinese e-commerce heavyweight Alibaba Group's options were among the most active on Monday, their first day of trading, with an even mix of bullish and bearish bets.

The mix implies equal numbers of bets on the Alibaba stock climbing or falling from current levels. The company's shares were down 2 percent at $88.80 on Monday.

Options volume for Alibaba was 122,000 contracts, with 65,000 calls and 57,000 puts traded on Monday, according to data from options analytics firm Trade Alert, making it the day's tenth most active name in the options market.

The volume was about a third of the one-day record volume of 365,000 contracts on Facebook Inc that traded in its options market debut in May 2012.

"It's a tame opening for the first day of options trading," said Brian Overby, senior options analyst at online brokerage TradeKing in Charlotte, North Carolina.

The 30-day implied volatility for the options was at 41.54 percent according to Livevol data. Implied volatility of Chinese Internet stocks Weibo Corp and Baidu Inc were at 60.32 percent and 34.16 percent, respectively.

Implied volatility, a measure of the risk that big moves in the stock pose and a key factor in setting options prices, is typically high for stocks that have recently had their initial public offering.

"I am still showing Alibaba on the easy-to-borrow stocks list so there are not a lot of driving factors to add volatility," Overby said.

Short sellers, when dealing with a stock that is difficult to borrow, sometimes take to the options market to express their short bias and bet on a drop in the stock's price.

The annual cost to borrow Alibaba shares has varied widely in the days since its initial public offering on Sept. 19. It started out in the 25 percent region but soon dropped to just 0.2 percent and has stayed at about that level, according to data from SunGard’s Astec Analytics, indicating little difficulty in making short bets in the name.

"In Friday’s session about 8 percent of all shares currently being borrowed were returned," said Karl Loomes, market analyst at SunGard’s Astec Analytics.

Overall, about 22 percent of shares available for borrowing were being used for short bets, according to data from Markit.

TradeKing's Overby expects implied volatility for Alibaba's options to come in and go somewhere toward the 30-25 percent level over the next week.

At a size of more than $25 billion, Alibaba's IPO is ranked as the world's biggest with some 368 million shares.

Reporting by Saqib Iqbal Ahmed; editing by Andrew Hay and Richard Chang

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