Andrew Keene's Alibaba Trade

Speaking on CNBC's Trading Nation, Andrew Keene suggested that traders should consider a bearish options strategy in Alibaba Group Holding Ltd BABA.

Keene explained that the stock was stuck in a range for a long time and it recently traded sharply higher to $110. He presented a weekly chart of Alibaba and he concluded that $110 could be a short-term top, because it's similar to the top from November 2014, which was at $120.

To make a bearish bet, Keene wants to buy the November 97.5/92.5 put spread for $1.20. He decided to pick the 92.5 strike, because that's the 50-day moving average and he picked the November expiration because of the earnings report in October. The trade breaks even at $96.3 or approximately 9 percent lower from the current stock price. It can maximally gain $3.8, if the stock drops to $92.5 or lower.