How Options Traders Doubled their Money on the Alibaba Stock Boom

BABA stock was heavily shorted, despite the fact the company just posted strong earnings

May 23, 2017 at 10:37 AM
facebook X logo linkedin


Subscribers to Schaeffer's Option Advisor recently doubled their money with Alibaba Group Holding Ltd (NYSE:BABA) July 105 calls, which we recommended in the April issue of our options recommendation newsletter. Let's break down why we were bullish on BABA stock to begin with, and how the options trade played out. 

After gapping higher thanks to a strong earnings report in January, Alibaba stock had been consolidating a few points above the round $100 level for almost two months. The shares broke north from this area of consolidation to cross above their 20% year-to-date breakeven level, exemplifying the stock's impressive technical strength. 

Despite this showing on the charts, BABA stock was heavily shorted. More than 111 million shares were sold short, which equated to more than two weeks' worth of buying power, based on the stock's average daily volume. Pessimism was also apparent among retail investors, with a TD Ameritrade study revealing this crowd to be net sellers in February and March. 

Putting the icing on the cake was BABA's 30-day at-the-money implied volatility, which ranked below 99% of comparable readings at the time of our March 24 options recommendation -- meaning premiums were relatively inexpensive.

As expected, Alibaba stock continued its ascent on the charts following our recommendation. BABA cruised to record highs by May 15, when we closed our position for a 100% profit. 

baba stock

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI