BABA Analysis

Alibaba Group Holding Ltd. (BABA)

Update 11/2/2017: BABA reported earnings of $1.30 per share, 14.9% higher than the Street estimate of $1.11. Shares rose to $5.14 above the prior day’s close and then declined. I exited early while the trade was still profitable, at 55.0% of maximum potential profit, well above my target.

Prior to the earnings announcement Zacks calculated a 2.1 earnings surprise prediction for BABA with neutral expectations for the longer term and a high beta of 2.60.

BABA closed the first session after earnings down $1.27, smaller than the maximum or average moves of the past  year, and also than the central tendency.. In terms of assessing the trade, the fact that a strong rise after the announcement turned into a decline shows it have been a risky play: The early bird gets the worm, as the old cliche goes, since only those who exited in the first two hours of trading would have cashed out above the prior session’s close.

Shares rose by 2.0% over my one-day holding period, or a +723% annual rate. The options position produced a 122.2% return for a +44,611% annual rate.


BABA publishes earnings on Thursday before the opening bell.

I shall use options that trade for the last time 16 days hence, on Nov.. 17.

Implied volatility stands at 39%, which is 3.9 times the VIX, a measure of the volatility of the S&P 500 index.

BABA’s IV stands in the 92nd percentile of its annual range and the 91st percentile of its most recent broad movement.

The price used for analysis was $185.86.

Premium: $1.60 Expire OTM
BABA-vertical Strike Odds Delta
Puts
Long 175.00 73.1% 24
Break-even 181.60
Short 180.00 62,4% 34

The premium is 160% of the width of the position’s wings.

The risk/reward ratio is 2.1:1.

 

The bid/ask spread is 21.5%.

Decision for My Account

I have entered a position on BABA as described above. The stock at the time of entry was priced at $186.18.

By Tim Bovee, Portland, Oregon, October 31, 2017

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

 

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