Dan Nathan's Yahoo! Inc. Trade - Alibaba Gr Holding (NYSE:BABA)

27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.

Dan Nathan talked on CNBC's Options Action

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about a bullish options strategy in Yahoo! Inc. (NASDAQ: YHOO). He said that people are asking him all day how to take a long position in the stock because they see it as a play on Alibaba Group Holding Ltd

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(NYSE: BABA). Nathan thinks that it is better to buy

Yahoo! Inc. than Alibaba Group Holding Ltd, because it is trading below its core value. To take a long position he would buy a call butterfly with November expiration. Specifically, he would buy the November 40 call for $3.20, sell two November 45 calls for a total of $2.70 and buy the November 50 call for $0.50. This trading set up would cost him $1 and it would be profitable if the stock trades between $41 and $49 on November expiration. Maximal profit of $4 would be achieved if Yahoo! Inc. trades at $45 on November expiration.Mike Khouw added that he likes the 4 to 1 ratio and the fact that the stock doesn't have to move a lot to pay off because the structure is slightly in the money.