Alibaba Group Holdings Limited (BABA), Trending Stock Report

Alibaba Group Holdings Limited (BABA) is trending in the news. Social media mentions are up 208% in the last 24 hours. One-Month Volatility expectations are soaring and it’s not because the stock is falling. Fear is causing volatility expectations to rise, but it’s not the fear of a downward cascade. It’s FOMO, the Fear of Missing Out.

The Chinese government is pumping money into the Chinese market and BABA, one of the most popular Chinese stocks, is launching higher. The good news for options traders is that the demand for BABA options is pushing options prices to extreme levels. You can see in the time series chart below that Call Volume (the lower blue line) is spiking much higher than Put Volume (the lower red line). However, call prices cannot increase without taking put prices higher with them. This is because of something called Put/Call Parity. It is a fact that Put and Call prices at the same strike price must have equal time value or options investors could have a risk-free trade opportunity. We’ll talk about this in our ODDS Online Daily Coaching session on Tuesday next week at 2 pm ET.

What you need to know right now is that the huge demand for BABA options is opening up an opportunity for a limited-risk, high-probability trade.

This Volatility Term Structure chart for BABA is inverted. That is, shorter-term options have higher volatility than longer-term options. This is the exact opposite of a normal term structure curve. Demand for short-term options is extreme. This opens up an opportunity for a high-probability, Zero—Days-to-Expiration (0DTE) trade.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of BABA’s share prices over the past year (the blue histogram). You can see that the actual stock movement does not look like the modeled expectations at all. This graph tells us that expectations have gotten extreme. Options prices are very expensive compared to the past stock behavior.

BABA share prices are rising and demand for options is extreme. The extreme demand for options is pushing options prices to extreme levels. This opens up an opportunity for limited-risk, high-probability Put Credit Spread.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea.