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Wednesday, May 10, 2017

INVESTOR RESEARCH OPTION STOCK TRADING: Alibaba Group Holding Limited (BABA)

BABA Earnings Options Play


Alibaba Group Holding Limited, operates as an online and mobile commerce company in the People’s Republic of China and internationally. I like to think of the company as the AMZN of China! BABA reports earnings on May 18, 2017 let us look at a strategy to capitalize on the earnings report.

Technically, the chart looks phenomenal!. BABA meets all the criteria for a long or if already long stay with the trend. The multiple time frame analysis confirms positive momentum with price above the wave. Overhead resistance is at 120 which BABA is knocking on currently on the path to new all time highs. Usually when a stock is approaching new highs weak hands will try to short it leading to a breakout on volume to new highs as the shorts will have to cover. Remember, we want to be strong hands as smart traders and not fight the trend!
As of May 10, 2017, BABA is trading at 119.85 with the expected move for May 19, 2017 option expiration is $5.70 I can find the expected move by adding the ATM straddle for the week of expiration.  Therefore, if I add 119.85 + 5.70 = 125.55 as an upside target for an options play expiring on May 17, 2017. The goal from trading the week of expiration options capturing the earnings move is I can isolate the earnings event.

BABA Options Trade idea:


I am bullish on BABA  with a price target slightly above 125. Therefore, I can develop a trade that will take advantage of my expected move with limited capital requirements. The May monthly expiration 123 calls are trading at 1.55 I want to buy these calls and sell the May 125 calls at 1.00 resulting in a May 123-125 bull call debit spread. The price is .55 debit my max loss and my max profit is 2 wide spread minus .55 debit = 1.45 that’s nearly a 3 to 1 return on my capital if BABA closes at or above 125 by May expiration!


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