Introduction to Options Trading
Investors in Alibaba Group Holding Ltd were treated to the commencement of trading for new options contracts with a May 31st expiration. Options present a unique opportunity for traders to leverage their capital and potentially enhance their returns. The emergence of these new contracts garnered attention, particularly focusing on a put option at a $68.00 strike price and a call option at an $80.00 strike price.
Unleashing the Potential: Put Option Insights
The put option at the $68.00 strike price beckons traders with a bid of 54 cents. Selling-to-open this put contract could lock in a purchase price of $68.00 with an effective cost basis of $67.46 (pre-broker commissions). This offer, presenting about a 9% discount to the current trading price of Alibaba’s stock, may expire worthless, with current analytics indicating a 78% probability. Investors could achieve a 0.79% return on the cash commitment or 5.80% annualized – a strategy Stock Options Channel affectionately dubs the YieldBoost.
Seizing Opportunities: Call Option Perspectives
On the flip side, the call option at the $80.00 strike price carries a bid of $2.53, presenting a chance for investors to engage in a “covered call” strategy. By selling this call contract, traders are committing to selling their stock at $80.00, potentially garnering a total return of 10.66% if the stock is called away at expiration. However, prudent investors must consider market dynamics and business fundamentals before engaging in such maneuvers. The $80.00 strike denotes an approximate 7% premium to the current trading stock price – a risk that may culminate in the contract expiring worthless, with a 62% current probability. YieldBoost metrics project a 3.39% boost in extra return or 24.76% annualized if this scenario unfolds.
Analyzing Volatility and Historical Data
The implied volatility in the put and call contracts stands at 40% and 42%, respectively. Contrasting these figures, the actual trailing twelve-month volatility registers at 35%, reflecting a deeper insight into Alibaba’s stock price movement. Investors keen on exploring further options contract ideas can delve into StockOptionsChannel.com for additional insights.
