Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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.

Most Valuable Brands In China

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.

Warren Buffett and BillionairesFree Report: Warren Buffett and 12 Billionaires Are Crazy About These 7 Stocks

Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. CLICK HERE NOW for all the details.