To The Moon

Alibaba Options Volume Doubles Amid Convertible Bonds Offering

$Alibaba(BABA)$   options volume more than doubled, setting the Chinese e-commerce giant on course to join $Opendoor Technologies Inc(OPEN)$  ,  and $NVIDIA(NVDA)$   in the six most active stock options after the company announced a $3.2 billion convertible notes offering to help boost its cloud infrastructure.

To minimize potential dilution of the stake of existing shareholders, Alibaba will implement capped call options with a strike price 60% above the reference share price, according to the company’s filing with the Securities and Exchange Commission Thursday. 

The convertible notes offering allows Alibaba to “tap low-cost, higher duration capital to invest in its cloud infrastructure and international commerce businesses,” Bloomberg Intelligence credit analyst Robert Schiffman wrote in a note.

Shares advanced as much as 9% to $156.85, the highest since late 2021. The rally pushed many of Alibaba’s call options in the money, boosting their appeal to investors and speculators a day before they expire. 

About 710,590 Alibaba call and put options changed hands across 20 expiration dates as of 2:27 p.m. in New York Thursday. That sets the company on pace to be the sixth most active stock option behind $Opendoor Technologies (OPEN.US)$'s 3.09 million contracts, Tesla's 2.74 million, Nvidia's 1.73 million, $Oracle (ORCL.US)$ 's 1.07 million and $Apple (AAPL.US)$'s 851,420 options. 

Alibaba's options volume jumped from 239,085 on Wednesday and compared with a 20-day average of 305,952 contracts.  

The offering was announced days after the company reported a 26% jump in its Cloud Intelligence revenue in its fiscal first quarter ended June 30, boosted by increasing demand for products related to artificial intelligence. 

About 80% of proceeds from the convertible notes offering will be used to enhance the Alibaba’s cloud infrastructure capabilities, including data centers expansion and technology upgrades, and the rest will support international commerce operations, according to the filing. 

Call options that give their holder the right to buy Alibaba's American depositary receipts at $155 each by tomorrow attracted the heaviest volume after the share price climbed above that strike price. Volume reached more than 30,160 contracts, almost 10X the open interest.

The notes won’t mature until Sept. 15, 2032, with Alibaba retaining flexibility to settle conversions in cash, American depositary shares (ADSs), or both.

The notes offering gives Alibaba enough money to "fund the delivery wars," while investors wouldn't need to worry too much about the potential dilution, which is still "far away," given that the shares will only be diluted after the stock price rises more than 60% from current level," Goldhorse Capital Management's Daniel So was quoted by Bloomberg as saying.

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