BABA Analysis

Alibaba Group Holding Ltd. (BABA)

Update 5/18/2017: BABA gapped sharply to the downside and then partially recovered. I judged it had gone about as far as it could in recovering for the near term, and I exited for a debit of $5.31, or 15.2% of maximum potential profit.

Shares showed a net decline of 2.9%  at the time I exited, or a -1,047% annual rate. The options position produced a 17.9% yield on debit for a +6,530% annual rate.

BABA publishes earnings on Thursday before the opening bell.

I shall use the series of monthly options that trade for the last time nine days hence, on May 26.

Implied volatility stands at 34%, which is 2.4 times the VIX, a measure of the volatility of the S&P 500 index.

BABA’s IV stands in the 63rd percentile of its annual range and the 98th percentile of its most recent broad movement.

The price used for analysis was $121.56.

Premium: $6.26 Expire OTM  
BABA-iron fly Strike Odds Delta
Long 135.00 92.6% 9
Break-even 128.26
Short 122.00 55.6% 47
Short 122.00 44.4% 53
Break-even 116.26
Long 110.00 89.2% 10

The premium is 50% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered a position on BABA as described above. The stock at the time of entry was priced at $121.32.

By Tim Bovee, Portland, Oregon, May 17, 2017

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