Alibaba hit all-time highs even as the broader market fell today, rewarding upside option traders with big profits.
Just yesterday, Investitute’s tracking systems detected the purchase of 18,500 August $162.50 calls for $2.85 to $3.25 with shares at $159.58. Volume was well above the strike’s open interest of 8,166 contracts, indicating that this was fresh buying.
Those calls traded up to $5.65 this morning, nearly doubling in value less than 24 hours later. The stock was up only 5.27 percent at the same time, showing how quickly options can far outpace gains in their underlying shares.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.
BABA finished today’s session up 2.93 percent to $163.92 after posting a lifetime high of $168 in the morning. The Chinese e-commerce giant surpassed estimates on the top and bottom lines before the market opened.