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Is Alibaba (BABA) Ready to Accelerate Higher?
Alibaba, broke out to fresh all-time highs last week following better than expected financial results both on the top and bottom line. Prices have been forming a bull flag pattern which is a pause that refreshes higher.
If you concur with the views expressed by these analysts, consider making this trade which is a bet that BABA will continue to advance (or at least not decline very much) over the next five weeks:
What impressed investors even more than the company’s financial result, was the company’s forward guidance. The Chinese e-commerce giant estimates that revenue will increase almost 50% in the 2018 fiscal year. Analysts had previously estimated a revenue increase of about 35%. In the wake of this news, the average price target was raised to $160 with the highest at $190.
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Technicals
After a round of profit taking the stock should resume its climb. The stock price has not closed below its 10-day moving average since February. One way to bet on a further climb would be to put on a bull put credit spread where the short strike was below the 20-day moving average. Support is seen near the 10-day moving average at $136.92.
 *source Stockcharts.com
Buy To Open BABA 21Jul17 133 puts (BABA170728P133)
Sell To Open BABA 21Jul17 136 puts (BABA170728P136) for a credit of $1.12 (selling a vertical)
This price was $0.03 less than the mid-point of the option spread when BABA was trading slightly above $139. Unless the stock rallies quickly from here, you should be able to get close to this amount.
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If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $2 per contract (and there is no commission on closing trades, only the $.10 clearing fee). Each contract would then yield $110 and your broker would charge a $300 maintenance fee, making your investment $190 ($300 – $110). If BABA closes at any price above $136 on July 28, 2017, both options would expire worthless, and your return on the spread would be 58% (603% annualized).
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry
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Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com
You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
I look forward to having you on board, and to prospering with you.
Terry
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