The end of earnings season is nigh. But, a few popular stocks have yet to engage in the quarterly dance. Alibaba Group Holding Ltd (NYSE:BABA) is set to unveil its latest earnings before market open Wednesday, so let’s see what the Chinese e-commerce giant has in store for anxious spectators. Trades await for those looking to get in on the BABA stock action.
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On the technical front, BABA stock has been losing steam ahead of tomorrow’s fireworks.
Sellers have hollered for the stock to roll over and, like an obedient puppy, BABA is responding. Since notching a new 52-week high in late-September, Alibaba shares are off 8%.
While it’s certainly not irreparable damage, the slide has been sufficient in carrying Alibaba stock below the 20-day and 50-day moving averages. Which really means it’s simply following the footsteps of the broader market, which has been slipping on pre-election jitters for weeks now.
As is customary, BABA stock options are juiced ahead of Wednesday’s earnings release. The implied volatility rank is nestled just below the 50th percentile, suggesting Alibaba options are seeing some of their richest levels of the year.
If you’re curious about how much price movement is expected, look no further than the value of the Nov. 4 Weeklys straddle set to expire this Friday. Currently, it’s trading for about $6, which means Alibaba is expected to move in a range of plus or minus 6% by the end of the week.
If you think that sounds a bit much, then you’re of the opinion that options are too expensive. The opposite is true if you think the stock has the mustard to move more than that.
Pick Your Poison With BABA Stock
It typically pays to bet with volatility sellers ahead of earnings, so we’re going to focus on a pair of short option plays — one for bulls and one for bears.
Traders willing to bet with the bulls into BABA earnings should consider selling the Nov $95/$90 bull put spread for $1.05. You will capture the max reward of $1.05 if the stock sits above $95 at expiration. The max loss is limited to the distance between strikes minus the net credit, or $3.95.
If you think sellers hold the upper hand into earnings, consider selling the Nov $105/$110 bear call spreads for $1.20. The initial $1.20 credit represents the max reward and will be captured if BABA remains below $105. The max loss is $3.80.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
