Diving Into the Options Market
As Alibaba Group Holding Ltd (Symbol: BABA) investors witnessed the initiation of new options trading for the January 2027 expiration, a strategic financial dance has begun. With 851 days remaining until expiration, the options present a tantalizing prospect for both put and call sellers to secure premium returns, surpassing what the nearer-term contracts can offer.
Seizing the Opportunity
The $80.00 strike price put contract stands out, flaunting a current bid of $12.10. By selling-to-open this put, an investor commits to acquiring the stock at $80.00, accompanied by collecting the premium. This move sets the cost base of the shares at $67.90 pre-broker commissions, a figure alluring to potential BABA investors, representing a formidable 4% discount to the stock’s current trading price.
On the Risky Side
But every rose has its thorns. The put contract’s looming expiration might render it worthless, a 67% probability according to existing data. Yet, if this outcome transpires, the premium equates to a substantial 15.12% return on the cash commitment or a slick 6.49% annualized rate — a.k.a. the fabled YieldBoost.
Observing the options from a call perspective, the $90.00 strike flashily boasts a bid of $15.75. Adopting the covered call strategy involves selling the stock at $90.00, potentially culminating in a substantial 26.53% return (exclusive of dividends) if the calls are exercised at the 2027 expiration. Yet, prudence is necessary, as immense potential upside for BABA shares could be left on the table.
Weighing the Call Options
The $90.00 strike carries an approximate 8% premium over the current stock price, indicating a potential for the call contract to expire without worth. The prognosis stands at a 40% likelihood according to current analytics. In the event of a useless outcome, the investor retains their shares and the collected premium, offering an additional 18.84% boost or an 8.08% annualized yield — another flavor of the cherished YieldBoost.
Volatility and More
The notable 35% implied volatility in the put contract scenario juxtaposed with the 39% in the call contract underlines the market’s anticipatory mood. Meanwhile, actual trailing twelve-month volatility clocks in at 33%, factoring in the latest 250 trading days concluded by today’s $83.58 price.
For those hungry for further options ideas, a visit to StockOptionsChannel.com promises a feast of possibilities.