Investors in Alibaba Group Holding Ltd (Symbol: BABA) have been presented with new options available for trading from today, with the expiry set for February 23rd. At Stock Options Channel, meticulous analysis has uncovered one put and one call contract that stand out amongst the BABA options chain.
Should an investor opt to sell-to-open the put contract positioned at the $75.00 strike price, they commit to purchasing the stock at $75.00, yet also receive a premium, reducing the cost basis of the shares to $72.63 (pre-broker commissions). This could potentially be an enticing alternative for those keen on acquiring BABA shares, offering a 1% discount compared to the current trading price. In the event of the put contract expiring worthless, the premium could yield a 3.16% return on the cash commitment or 23.07% annually – a strategy we refer to as the YieldBoost.
Analytical data indicates a 99% chance of the put contract expiring worthless, and the odds will be tracked over time by Stock Options Channel. The call contract at the $78.00 strike price has a current bid of $1.90. An investor purchasing BABA shares at the current price level of $75.53/share and selling-to-open that call contract as a “covered call” commits to selling the stock at $78.00. The call seller will also receive the premium, resulting in a potential total return of 5.79% if the stock is called away at the February 23rd expiration (before broker commissions).
Delving into the investment’s downside and upside, it’s crucial to examine BABA’s trailing twelve-month trading history. Notable here is the potential upside that could be squandered should BABA shares significantly ascend. With the $78.00 strike representing roughly a 3% premium to the current trading price, the odds of the covered call contract expiring worthless are estimated at 99%. Should this come to pass, the premium would augment the investor’s return by 2.52%, or 18.36% annually, known as the YieldBoost.
Meanwhile, the actual trailing twelve-month volatility is calculated to be 39%, significantly shaping the risk profile. For more insights on put and call options contract ideas, StockOptionsChannel.com offers a comprehensive resource.
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