Alibaba Options Volume Doubles Amid Convertible Bonds Offering: Options Chatter

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.

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.