Alibaba Group Holding Ltd (BABA)’s Secret Options Play Ahead Of Earnings Call: Dan Nathan

Alibaba Group Holding Ltd (NYSE:BABA) has the last test to pass before it can go down in the history books as a successful IPO. The stock has to avoid a dive preceding its Earnings Release on 4th November. CNBC‘s Options Action traders discussed the best strategy to profit from a bullish outlook on the stock, while at the same time incurring minimum loss, in case the Chinese e-commerce decides to take a swim.

Dan Nathan drew attention to the butterfly that he had constructed using 3 call options on the Alibaba Group Holding Ltd (NYSE:BABA) stock. The holder of the position is set to profit if the stock price ends up anywhere in the range of $102 to $118, and the maximum that he can lose is $2 on the trade.

“[…] This is a tactical trade in November expiration to a call butterfly and today when the stock was $99 I priced it up. It was the November $100, $110, $120 call butterfly. You could buy that for $2. You will be buying one of the November $100 calls for $1.20, selling 2 November $120 calls at $1.25 each, and then you buy one of the November way out $120 call for $30. It costs $2 and that is your max risk, you can make between $102 and $118. That is  a massive range to the upside,” said Nathan.

Alibaba Group Holding Ltd (NYSE:BABA)’s valuation looks great, if the company is actually able to deliver on the growth story that it is telling. With an earnings multiple of around and a market cap of $247 billion, the stock looks in good shape as it goes into its first Earnings Release since its IPO.

However, there are certain concerns that investors have regarding Alibaba Group Holding Ltd (NYSE:BABA)’s ownership structure. Michael Khouw drew attention to these as well.

“[…] My concern is that they have a really funky ownership structure. Secondly, China doesn’t have the best possible track record of protecting the interest of ownership outside of the Chinese, that is just a fact […],” said Mike.

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