Alibaba Group Holding Ltd (NYSE:BABA) is finally showing signs of a compelling long-term investment. CNBC’s Contributor, Dan Nathan, believes the stock has become a little more constructive especially in the Options market. Thanks to the strong upward momentum.
Alibaba Group Holding Ltd (NYSE:BABA) has had an impressive reversal from the downward trend that threatened to sink it to the IPO price of $68 a share. The upward momentum has since positioned it as an attractive prospect in the Options market as it closes in on the $100 trading mark.
“To me I think you want to define your risks, Options prices are relatively cheap in Alibaba. The cheap they have been since the IPO last year,” said Mr. Nathan.
For the next 5 to 6 weeks, Nathan expects Alibaba Group Holding Ltd (NYSE:BABA) to trade in the $90 to $100 trading range. The range presents an opportunity to buy the $90-$100 call spreads that should generate $3. “That is your max risk. You are buying one of the July $90 calls for $3.60 you are selling one of the July $100 calls at $60 cents. Between $93 and $100 you can make up to $7,” said Mr. Nathan.
The strategy in the action market is to buy the stock at the current $90 trading mark and sell it at the $100 mark. Nathan believes one should exit the trade as soon as the stock clocks $100 mark. This is the point that kick-started the downward trend that saw the stock sink to below the $80 mark.
Should the stock clock the $100 mark, it will be interesting to see if the upward momentum will hold or it will resort to the downward trend. Since Alibaba Group Holding Ltd (NYSE:BABA) posted a 45% jump in revenue, the stock has continued to soar highlighting its potential as a long-term investment.
Surging to the $100 trading mark should not be a problem as more people in China continue to use the internet. E-commerce transactions in the country continue to increase expected to have a huge tailwind on Alibaba Group Holding Ltd (NYSE:BABA)’s earning in the subsequent quarters.
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