Today marked the initiation of trading for new options on Alibaba Group Holding Ltd (Symbol: BABA) set to expire in January 2027. For savvy investors eyeing these freshly minted contracts, the allure lies in the time value aspect. With a whopping 851 days until expiration, these novel trading derivatives present a prospect for nimble puts or calls vendors to potentially rake in sweeter premiums than their near-expiry counterparts.
Exploring the Put Contract
Let’s delve into the $80.00 strike price put contract, boasting a bid of $12.10. By opting to sell-to-open this contract, investors commit to buying the stock at $80.00, essentially securing a cost basis of $67.90 per share after factoring in the premium—a compelling alternative for those eyeing BABA shares at $83.58 apiece today. However, with the strike price representing a 4% markdown from the current stock price, there’s also a chance that the put contract might dwindle into oblivion. Analytics point to a 67% probability of such an outcome, with ongoing monitoring by Stock Options Channel to track and visualize any shifts in these odds.
Capturing the Call Contract Potential
On the flip side of the option chain, the call contract at the $90.00 strike commands a bid of $15.75. In a ‘covered call’ scenario, where an investor purchases BABA shares at the prevailing price of $83.58 and sells-to-open this $90.00 call contract, the commitment is sealed to vend the stock at $90.00. The ensuing equation spells a potential 26.53% total return (disregarding dividends) if the shares are called away by January 2027. However, there lies the risk of missing out on substantial gains should BABA’s share price skyrocket. Rigorous scrutiny of BABA’s trading history over the past year, coupled with a deep dive into the company’s fundamentals, becomes imperative for well-informed decision-making.
Charting the Course
A visual depiction showcasing BABA’s year-long trading history pinpoints the $80.00 put strike in verdant shades and the $90.00 call strike in bold ruby hues, providing a tangible backdrop for evaluating the aforementioned options strategies.
Evaluating the Odds and Volatility
The put contract displays an implied volatility of 35%, contrasting with the call contract’s 39%. Meanwhile, the factual trailing twelve-month volatility, taking into account the latest 250 closing prices alongside today’s $83.58 value, stands at 33%. For a plethora of engaging put and call options concepts, a visit to Stock Options Channel is certainly warranted.