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BABA: Alibaba Stock Beckons Bottom Fishers

Alibaba looks poised to bounce back after a long downturn

Spring has arrived and Alibaba Group Holding Ltd (NYSE:BABA) has turned a new leaf. The bear hibernating in BABA’s den has finally departed, allowing the Chinese giant to halt its harrowing descent.

alibaba stock ipo baba stockA closer inspection of Alibaba’s stock chart reveals a handful of positive developments in recent weeks. Bottom fishers now have ample reason to put BABA on their radar.

Our last foray into the stock bore fruit and I see little reason why we shouldn’t re-up the bet here. The case for a bullish play is even stronger now than it was then.

But first, let’s review the aforementioned positive developments:

  1. Accumulation days are on the rise. We’ve seen no less than seven higher-than-average volume up days since March. This marks a decisive change in character for BABA stock as it had virtually no accumulation days during its three-month downtrend.
  2. Trend structure has improved dramatically. Alibaba stock has carved out a series of equal pivot lows, which has flattened out its trend and created a base that it can now launch higher from.
  3. Today’s up-gap has taken BABA stock above its 50-day moving average for the first time in months. When stocks that have heretofore been unable to break resistance all of a sudden sail through them with ease, bulls should take note.
BABA stock
Source: OptionsAnalytix

Bottom-Fishing BABA with Options

Traders looking to profit from continued strength out of BABA could sell May put spreads. I typically suggest selling far out-of-the-money options to increase the probability of profit, but in this case I’ll throw out something a bit more aggressive for those looking for higher profits if BABA cooperates.

Sell the May $85/$80 put spread for $1.50 credit. The maximum reward is limited to the $1.50 credit and will be captured if Alibaba stock remains above $85, which it should if this breakout is legit.

The maximum risk is limited to the distance between strikes minus the net credit, or $3.50, and will be lost if BABA falls back below $80.

With today’s up-gap getting sold into, it may be worthwhile to wait for a pullback in BABA before pulling the trigger on the spread.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/baba-alibaba-stock-beckons-bottom-fishers/.

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