BABA Trade on Dec 28, 2020 15:44 from Marius: Tradervue User Stock Trades.

Markets opened higher with signed stimulus bill. This is another shortened holiday week with most larger institutions and fund managers off until the new year. Volume is lighter into the end of the year but keeping in mind any selling year end for tax purposes.

Fundamental Analysis

BABA is a leader in the Chinese consumer discretionary sector. Recent ANT IPO halt was a concern a couple weeks back and may have been an early sign of issues. The Chinese government announced that it will be investigating its business. This initiated a large sell off in one of the largest companies in this area.

Quantitative Analysis

Intraday Fundamentals

RVOL 3.24
AVOL 22.719M
ATR 9.04
Short Float 1.52%
Inst Own 43.9%
Market Cap 694.25B

Options Statistics

SI 1.912
IV 50.35%
IVP 51%
P/C Ratio 0.587
VWAP 221.777

Seeing on the second day on the news more calls traded vs puts and near the mid. More OTM calls similarly with the puts. Potentially signaling stabilizing order flow.

Options Positioning

Strikes 255C / 257.5C / 260C
OI 2,694 / 1,674 / 3,605
Vol 1,535 / 445 / 1,709
Delta .02 / .02 / .02
Theta -.06 / -.06 / -.05
Vega .01 / .01 / .01
Gamma .00 / .00 / .00
Prob T 3.06% / 2.64% / 2.25%
Prob ITM 1.51% / 1.31% / 1.11%
MMM +/- 9.135
IV Series 50.86%

Tried to get filled initially further out but adjusted strikes as the order flow shifted. Still positioned similarly just noting the experience and workflow of getting my order filled in a position that makes sense R/R in my playbook and for the trade as it developed.

Tape Reading

Noted the large call seller at the open. Was seeing more call selling later in the day at lower strikes. Matches with the deltas and bid side of the early statistics.

Was watching the shares tape in realtime and will be including recordings in the near future to review along with the options tape. Tight spread and reminded me of a high beta name like TSLA and AAPL. High liquidity for intraday trades. More testing and observing but ready to use indications with price action on the chart. It did test VWAP and offers also lifted into the close but stayed below 225 which will be a key upside test level this week.

Technical Analysis

Noting the spike and reversion in IV. Volume looks to be more so done on the ASK then the BID looking at the past 2 days and noted with the daily wick on the first day. Price may compress here for a couple days, mean revert back to overhead supply, or break down further. More probability on my discretionary experience on the former.

HTF overview looking at the VPOC areas which currently is showing support and value buying. Anticipating buyer strength if 225 + 230 supply levels gets absorbed. And possibly a sharper move to the next VPOC which is where my strikes area. Will be watching this closely and cut the trade if buyers resume aggressive control. Seems to represent an oversold area for the time being.

Trade & Risk Management

As mentioned in my prior day analysis I was factoring in a scenario where buyers take aggressive control over 225 + 230. The momentum started in the overnight markets when the Nikkei futures broke out to ATH's. BABA opened higher in the pre-market and held the open. There were some unusual options activities at 235 with 90k volume which is about 2.1B notional value. BABA did announce an increase in the shares 2 year buyback program from 6B to 10B the previous day. I'm speculating this has something to do with it.

The thesis, dynamics, and parameters of the trade turned aggressively to the buyers and there was more risk to the upside. This is also factoring an increase in the VIX which increases vega / IV in the options markets. These were the 2 main factors invalidating the original trade and was exited in the late session as it traded into 240. I changed direction on my positioning and within my playbook + R/R parameters. Will be watching if and how the 235 level trades based on the new developments. 240 will be a level that was the pre-market resistance on day 1 of the news last week. If more supply gets absorbed this will be a good technical signal for the modified trade for the remaining 2 sessions of the week.

This type of event has played out in the past in names such as FB, MSFT, AMZN, and GOOGL. Most of the time government intervention does not majorly effect the growing business models. It's normal a "buy the dip" type of trade as I've seen develop. Keeping this in mind in future plays like these especially when I'm on the second day. I also had this in mind when placing the trade but placed more emphasis on the models. Noting that I will have to trust my process as I'm adding modeling parameters and be cognizant when leaning on them duding specific times.

I think I exited the trade appropriately at a specified time and risk parameter within my current process. I can utilize scaling out of the position to manage risk instead of waiting for a certain time and level. My initial risk was triggered early but hard stopped within my max allowable and range.

Quantitative Analysis Day 2

Intraday Fundamentals

RVOL 2.725
AVOL 25.583M
ATR 9.41
Short Float 1.52%
Inst Own 43.9%
Market Cap 737.65B

Options Statistics

SI 1.847
IV 46.99%
IVP 44%
P/C Ratio 0.339
VWAP 234.781

Noting the higher calls traded at 31% at the ASK and of those between 21-40 delta implying some change in the calls side order flow dynamics in that direction. Half of the puts were at 0-20 delta.

Options Positioning

OI 5,255
Vol 11,900
Delta -.05
Theta -.16
Vega .02
Gamma .01
Prob T 10.87%
Prob ITM 5.49%
MMM +/- 7.725
IV Series 46.90%

Noting the 90k+ volume done at 235 which is a 2.1B notional value. (need to build the options scanner for this after this trade as it will be better in tandem with my current scanner for stocks)

Tape Reading

Large put sellers in the morning session around VPOC and tested prior lows. Showing buying demand at the recent HTF support levels. Some large calls for 250/260 bought. Stock tape was below and but didn't use it as much as certain levels didn't come into play within the time window of my trade.

Test/Example : Adding section of options + stock tape data recordings here for traded going forward.

Technical Analysis Day 2

Clear strength from the buyers and holding the gap up. (this is also technically a gap-up over resistance trade trapping shorts including my options position). That 225 level was close and price made higher lows. It is doing the same currently with 240 which is also the pre-market high from the gap-down over support from last week on the news. Price is also now trading above intraday, 2 day, and an anchored vwap from the news day.

Continuing update Day 3

Noting the the large writes on both the 240 put side AM session + 247.5 call side PM session on the options tape. Seeing if price gets pinned into the close tomorrow. Options stats show more activity on the call side for today again.

Large sell off at the open and demand showing up at the 235 level. This is with the Hang Seng Index putting a HTF breakout after the Nikkei the day before. Buyers closed it above intraday vwap at the close.

Trade Review

Overall trade thesis and management was handled efficiently within risk parameters and process. (-0.05R) net return. I chose to scale and exit out of the position before close because I did not want to be exposed to any after hours trading activity that may add more risk to the position with options assignment.

Keeping in mind for future trades to really define my set-up and trading variables and execute within a minimum of that criteria. I learned that with this type of news flow and supply/demand price action in mega cap names tend to find buyers. The core business model of the company is not critically effected and can find some investors selling initially but overall buyers eventually in control on the mid to longer term time frame. My additional mistake was entering this on the 2nd day when usually I'm in position on day one. Supply/demand dynamics change depending on many factors but in this example the initial factored in risk ended up playing out quickly.

What I am doing better is in trade management and adjusting to quickly turning order flow. I can scale out of trades sooner to re-position and or observe if variables change. I'm more in the scalping mind set where I put in large size and tend to get in and out fairly timely but again in larger size. This is how I manage my risk especially when variables change quickly and against positioning.

Additionally my strength is in momentum changes as seen with the trade after being adjusted. I flipped long bias when my original trade thesis was invalidated. Re-emphasizing that this trade specifically was after the news had settled and sellers possibly exhausted. The momentum compressed. The overseas markets developed stronger bids which also factored in strength to the buyers here.

Grading the overall trade as a B due to subpar entry execution process but strong trade management process being open minded and continuing to work on development.

"If it doesn't challenge you, it doesn't change you."

One last "good trade" for the year and signing off 2020 with more reflections outside of the trading business and moving forward.