May 24, 2023
Our BABA and DIS positions are not working as the stocks have performed poorly after earnings in the last two weeks. It’s time to throw in the towel on both of those positions so we can move that capital into an earnings season winner, DKNG (more below).
To execute these trades you need to:
Sell to Close the BABA October 105 Calls
Stepping back, I’ve been adding earnings season winners in UBER, BSX and now DKNG, targeting a move higher later this year. The longer-term call buys should somewhat shelter us from the market pulling in if our friends in Washington, D.C. play with fire the next couple of weeks.
Finally, while the premiums collected via our sales of BABA and DIS are not large ($2.75 and $1.25) I am putting that capital right into our DKNG call buy, of which I am buying a full position.
April 25, 2023
Sell Half of your BABA October 105 Calls
I loved the stock strength and option activity when we bought our JETS and BABA calls. And while the set-up was nearly perfect, the trades have been far from it, as the market is not yet in gear and these stocks aren’t working. Let’s take a loss on half of our BABA calls.
To execute these trades, you need to:
Sell to Close Half of BABA October 105 Calls
Taking losses on these trades is no fun. However, the market has spoken, and neither of these trades is working, so let’s cut our losses on half of our BABA position.
March 30, 2023
Boom or Bust Trade: Buy the Alibaba (BABA) October 105 Call (exp. 10/20/2023) for $15.50 or less.
As I noted on Tuesday in a Stocks on Watch, Alibaba (BABA) had risen to the top of my watchlist following news that the company would split into six business groups, each with the ability to go public. And while the company shakeup is intriguing, of greater interest to me is the bullish option activity the last three days following the news release, including these trades:
Wednesday: Buyer of 7,000 Alibaba (BABA) September 115 Calls for $8.80 – Stock at 100
Tuesday: Buyer of 10,000 Alibaba (BABA) August 125 Calls for $4 – Stock at 95
Tuesday: Buyer of 7,000 Alibaba (BABA) May 100 Calls for $6.50 – Stock at 96.5
This is a small sample of the bullish option activity the last three days, and these call buys as well as the bullish reaction from Wall Street analysts (at the bottom of this email) are intriguing enough to get me involved with a “Boom or Bust” call buy.
Now, why am I calling this trade a boom or bust play?
Essentially, chasing a Chinese tech stock is NOT for the faint of heart, as the government can once again smack down on BABA or the sector at any moment. Also, we are potentially not early to this trade as BABA stock is up 18% this week.
That being said, there is the potential boom component of this trade as well, and should BABA really get in gear, this trade could be a monster winner in the months to come.
To execute this trade you need to:
Buy to Open the BABA October 105 Calls
The most you can lose on this trade is the premium paid or $1,550 per call purchased.
Please note, while I’ve labeled this trade as a “Boom or Bust” trade, and I will be buying my normal size with this trade, if you are worried about the bust potential, lowering your capital at risk in this trade is a fine choice as well
Finally, here are some of the Wall Street analyst reports following the corporate news earlier this week:
JPMorgan expects a positive share price reaction to Alibaba’s reorganization announcement. The firm’s sum-of-the-parts valuation analysis indicates a 210 value per share as a “blue sky scenario.”
The reorganization will lead to consistent margin improvement in the future, says the analyst, who keeps an Overweight rating on Alibaba with a 140 price target.
Morgan Stanley named Alibaba as a “Research Tactical Idea,” citing a belief that the share price will rise in absolute terms over the next 60 days. In a separate note, the firm called the company’s planned restructuring a “significant positive catalyst” with the potential to unlock “significant” sum-of-the-parts value. The firm, which said its sum-of-the-parts-based bull value of $200 per share “implies 100%-plus upside,” has an Overweight rating and 150 price target on Alibaba shares.
Loop Capital keeps a Buy rating and 135 price target on Alibaba after its announcement that the company plans to reorganize into six business units.
The analyst states that the low end of Loop’s updated framework suggests a “very strong case” for event-driven upside as management implements its restructuring plans. Loop further states that the public market valuation of the subsidiaries will shine a light on how inexpensive the Alibaba operating units and financial assets are in aggregate.
Truist has a Buy rating on the shares with a price target of 130.
|Position (Original)|| BABA October 105 Call|
|Position Strategy||Buy Call|
|Opened Date||March 30, 2023|
|Expiration||October 20, 2023|