HomeMarket NewsThe New Year Brings Wild Opportunities for Alibaba Trading Enthusiasts

The New Year Brings Wild Opportunities for Alibaba Trading Enthusiasts

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Exploring the January 2025 Options Market for Alibaba Group Holding (BABA)

Investors in Alibaba Group Holding Ltd (Symbol: BABA) witnessed the launch of new options trading for the January 2025 expiration this week. With 319 days left until expiration, these fresh contracts pose a tantalizing prospect for sellers of puts or calls to reap a richer premium compared to nearer-expiry contracts.

Unveiling Lucratively Priced Contracts

Stock Options Channel, utilizing its YieldBoost formula, scrutinized the BABA options chain for the latest January 2025 contracts and singled out a put and a call contract that beckon with promise.

The put contract at the $70.00 strike beckons with a current bid of $7.80. By selling-to-open this contract, an investor commits to acquiring the stock at $70.00, all while pocketing the premium. This effectively sets the cost basis of the shares at $62.20 before considering broker commissions. It presents an attractive alternative for investors eyeing BABA shares at $72.35 in the current market.

Given that the $70.00 strike sits at an approximate 3% discount from the stock’s current trading price – rendering it out-of-the-money by that margin – there is a 64% likelihood that the put contract could expire worthless. Stock Options Channel will diligently monitor this probability to illustrate any shifts over time, depicted through a detailed chart on their website. If the contract does expire fruitless, the premium would yield an 11.14% return on the cash committed, equivalent to a 12.75% annualized return – a phenomenon lovingly labeled as the YieldBoost at Stock Options Channel.

Optimistic Call Options and Strategic Insights

Venturing into the calls realm of the option chain, the call contract at the $80.00 strike boastingly flaunts a current bid of $8.40. Investors purchasing BABA shares at the present price of $72.35/share and further selling-to-open this call contract as a β€œcovered call” obligate themselves to vend the stock at $80.00. This strategic move, accompanied by premium collection, could potentially yield a total return of 22.18% if the stock is called away by the January 2025 expiration, excluding dividends – not factoring in broker commissions. However, a soaring Alibaba stock could leave hefty unrealized gains on the table, underscoring the importance of reviewing the trailing twelve-month trading history of Alibaba Group Holding Ltd and delving into its business fundamentals. Below, a chart illustrates BABA’s twelve-month trading history with the $80.00 strike painted in vivid red.

Considering that the $80.00 strike stands at around an 11% premium to the current trading price of the stock – technically out-of-the-money by that measure – there exists a 50% chance the covered call contract could lapse worthless. In this scenario, the investor retains both their stock shares and the premium gathered. Stock Options Channel will continuously monitor this likelihood over time, presenting the data through comprehensible charts. Should the covered call contract amount to naught, the premium collected would fork over an 11.61% supplemental return to the investor, a 13.28% annualized boon referred to affectionately as the YieldBoost.

The implied volatility in both the put and call contracts lingers around 39%.

Concurrently, the factual trailing twelve-month volatility, taking into account the last 250 trading day closing prices alongside the current price of $72.35, settles at 39%. Looking for more insights into enticing put and call options contracts? Find your way to StockOptionsChannel.com.

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The author’s perspectives are personal and do not necessarily align with those of Nasdaq, Inc.

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