Mike Khouw's Alibaba Trade Ahead Of Earnings

On CNBC's "Options Action," Mike Khouw suggested that investors with a long position in Alibaba Group Holding Ltd - ADR BABA should consider a less risky alternative going into earnings.

Khouw wants to sell the September $235 put for a credit of $8 and buy the September $260/$285 call spread for total cost of $7. With the options structure, he collects a premium of $1. If the stock rallies through $285, Khouw is going to make a profit of $26 or a little over 10% of the current price. If the stock drops below $235, he would have to buy it at $235, but his entry price would be $234 or around 7% below the current price. If the stock doesn't move at all, the $235 strike put and $285 strike call would decay more than $260 call, so it could be possible to collect more than $1, explained Khouw.

Tony Zhang likes the stock a lot, but he is concerned about the geopolitical risk, so he would not sell the September $235. He would just buy the September $260/285 call spread for $7.

Carter Worth sees a Friday's decline in Alibaba as a weakness to take advantage of. He thinks that Alibaba is a strong stock and he wants to buy it.

 

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Date of Trade
ticker
Put/Call
Strike Price
DTE
Sentiment
Posted In: OptionsMarketsTechMediaCarter WorthCNBCMike KhouwOptions ActionTony Zhang
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!