Alibaba Unveils New Options Trading: Key Insights for Investors
Investors in Alibaba Group Holding Ltd (Symbol: BABA) will notice new options trading starting today, set to expire on May 23rd. Using our YieldBoost formula, Stock Options Channel has examined the BABA options chain and identified one notable put and one call contract.
Attractive Put Contract Opportunity
The highlighted put contract at the $125.00 strike price shows a current bid of $6.60. If an investor sells-to-open this put contract, they commit to purchasing the stock at $125.00 while also collecting the premium. This sets the effective cost basis for the shares at $118.40, before broker commissions. For those looking to buy shares of BABA, this offers a potentially appealing alternative to purchasing at the current market price of $130.09 per share.
Notably, the $125.00 strike is approximately 4% below the current trading price, indicating that it is out-of-the-money by that margin. Consequently, there exists the chance that the put could expire worthless, with analytical data suggesting a 60% probability of this outcome. Stock Options Channel will monitor these odds over time, publishing updates on our website’s contract detail page. Should the contract expire worthless, the premium would yield a 5.28% return on the cash commitment, or an impressive 38.54% when annualized—what we refer to as the YieldBoost.
Below, we present the chart detailing the trailing twelve months of trading history for Alibaba Group Holding Ltd, with the $125.00 strike highlighted in green:
Exploring Call Contract Benefits
Turning to the call contracts, the $138.00 strike price appears with a current bid of $5.30. If an investor buys shares of BABA at the current price of $130.09 and sells-to-open this call contract as a covered call, they commit to selling the stock at $138.00. With the premium included, this creates a potential total return (excluding dividends) of 10.15% if the stock is called away by the May 23rd expiration (before broker commissions).
Investors should note that significant upside potential may remain if BABA shares increase notably, making it crucial to analyze both the trading history and business fundamentals. Below is the chart illustrating Alibaba’s trading history, with the $138.00 strike marked in red:
The $138.00 strike implies an approximate 6% premium over the current trading price, also categorizing it as out-of-the-money by that percentage. This raises the possibility that the covered call will expire worthless, allowing the investor to retain both the shares and the premium. Analytical insights currently suggest a 62% chance of that occurring. We will track these statistics over time on our website, along with a corresponding chart of the option contract’s trading history. If the covered call expires worthless, the premium will equate to a 4.07% additional return for the investor, or 29.74% when annualized—another example of a YieldBoost.
The implied volatility for the put contract stands at 47%, while the call contract shows 49% implied volatility. In comparison, our calculations estimate the actual trailing twelve-month volatility, based on the last 251 trading days and today’s price of $130.09, to be 43%. For further ideas on put and call options, visit StockOptionsChannel.com.
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also see:
- Institutional Holders of CAFD
- CRG Historical Stock Prices
- Funds Holding PCCC
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
