Investors Explore New Options for Alibaba Group Holding Ltd (BABA)

New opportunities in options trading emerged for Alibaba Group Holding Ltd (Symbol: BABA) today, with contracts expiring on March 28th. Stock Options Channel has identified a put and a call contract that stand out in the recent offerings.

Put Contract Analysis

The highlighted put contract has a strike price set at $100.00, with a current bid of $5.80. By selling this put contract, an investor agrees to buy the stock at $100.00 while earning the premium, effectively reducing their cost basis to $94.20 (before broker commissions). This could be appealing for those intending to purchase shares of BABA at today’s price of $101.04 each.

As the $100.00 strike is around a 1% discount from the current stock price, there’s a chance the put contract may expire worthless. Current analytics indicate a 56% probability of this outcome. Stock Options Channel will monitor this metric, updating a chart on our website reflecting these changing odds. Should the option expire worthless, the premium collected represents a 5.80% return based on the cash commitment, or an annualized 42.38%. This approach is known as YieldBoost.

Call Contract Overview

On the call side, a contract with a strike price of $102.00 is available, currently bid at $5.70. Should an investor choose to buy BABA shares at $101.04 and sell this call contract as a “covered call,” they would essentially agree to sell the stock at $102.00. Adding in the collected premium, this could lead to a total return of 6.59% if the stock is called away by the March 28th expiration (excluding any applicable dividends and before broker commissions).

While this strategy offers immediate gains, it may limit profit potential if BABA’s stock price rises significantly. Thus, reviewing both the recent trading history and the company fundamentals is crucial. The current chart below illustrates BABA’s trading history over the last twelve months, indicating where the $102.00 strike price fits in.

Since the $102.00 strike is near a 1% premium above the current stock price, it may also expire worthless, allowing the investor to retain both their shares and the collected premium. Present data provides a 49% chance for this scenario. Stock Options Channel plans to document these odds over time, making real-time updates via a detailed chart.

If the covered call option expires worthless, the premium would produce a 5.64% additional return for the investor, translating to an annualized rate of 41.22%, also recognized as YieldBoost.

Volatility Insights

The implied volatility for the put contract stands at 44%, with the call contract at 43%. Conversely, the calculated trailing twelve-month volatility, based on the past 250 trading days and the current price of $101.04, is 37%. For further options ideas, please visit StockOptionsChannel.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.