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Profit From the Return of Alibaba Group Holding Ltd (BABA) Stock Bulls

Here's how to play BABA to capitalize on a run to $100


After a long winter’s nap, Alibaba Group Holding Ltd (NYSE:BABA) shares have finally awoken. Perhaps the New Year’s Eve fireworks are to blame. Or maybe the growing throng of equity bulls were simply becoming a bit too rowdy. Regardless, BABA stock is now flashing strong technical signals and buyers are taking note.

Profit From the Return of Alibaba Group Holding Ltd (BABA) Stock Stock Bulls
Source: Shutterstock

Let’s take a shallow dive into its price chart to see if there’s a trade to be had.

The fourth-quarter descent carried Alibaba stock right into a bear market. Fortunately for shareholders, however, it didn’t remain in bear country for long.

All told, the 21.7% drubbing was sufficient in turning the 50-day and 20-day moving averages lower, but not the 200-day. And with the rousing start to 2017, BABA has returned to an uptrend. As illustrated in the accompanying chart, last year’s descent took on the form of a falling wedge pattern. Last Thursday’s surge above the descending trendline confirmed the reversal.

BABA stock
Source: OptionsAnalytix

Of course, the fact that the stock now sitting above the 50-day moving average certainly isn’t hurting the bulls’ case either. Volume patterns are also lining up nicely in favor of buyers here. BABA has notched three accumulation days over the past four trading sessions.

If you’ve been waiting for signs that Alibaba has returned to its once-bullish ways, wait no longer.

Profits Await in BABA Call Spreads

With the century mark once again beckoning, long call spreads are ripe for the picking. Buy the Feb $95/$100 call spread for $2.50 or better. The vertical spread is entered by buying to open the Feb $95 call and selling to open the Feb $100 call. The max loss is limited to the initial $2.50 debit and will be forfeited if the stock sits below $95 at expiration.

The max gain is limited to the distance between strikes minus the net debit, or $2.50, and will be captured if BABA can rise above $100 by expiration. Earnings are slated for Jan. 24, so be sure to re-assess the trade beforehand to determine if you want to hold into the number.

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

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