Investors of Alibaba Group Holding Ltd (Ticker: BABA) saw new options available today for the May 8 expiration. At Stock Options Channel, our YieldBoost formula scanned the BABA options chain for new contracts on May 8 and identified a put and a call call of particular interest.
The sale contract at an exercise price of $ 190.00 has a current offer of $ 9.05. If an investor had to sell to open this sales contract, he agrees to buy the security at $ 190.00, but will also receive the premium, by setting the base price of the shares at $ 180.95 (before the commissions of brokerage). For an investor already interested in buying BABA shares, this could represent an attractive alternative to the payment of $ 192.60 / share today.
Since the $ 190.00 strike represents a discount of approximately 1% over the current trading price of the stock (in other words, it is out of the game by that percentage), there is also the possibility that the sales contract expires worthless. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 57%. Stock Options Channel will follow these quotes over time to see how they change, posting a graph of these numbers on our website under the contract detail page for this contract. If the contract expires worthless, the premium would represent a return of 4.76% on the cash commitment, or 40.43% annualized – at Stock Options Channel, we call this the YieldBoost.
Below is a graph showing the twelve-month trading history for Alibaba Group Holding Ltd, and highlighting in green where the strike of $ 190.00 is located in relation to this history:
With respect to the option chain calls, the purchase contract at the exercise price of $ 195.00 has a current offer of $ 8.75. If an investor were to buy BABA shares at the current price of $ 192.60 / share, then sell to open this call contract as a “covered call”, he agrees to sell the shares at $ 195.00. Considering that the seller per call will also receive the premium, which would result in a total return (excluding dividends, if applicable) of 5.79% if the share is called back on the May 8 maturity (before brokerage commissions) . Of course, many benefits could potentially be left on the table if BABA shares really skyrocketed, which is why it’s important to look at the twelve-month trading history for Alibaba Group Holding Ltd, as well as study the fundamentals of the business. Below is a graph showing BABA’s twelve-month trading history, with the $ 195.00 strike highlighted in red:
Considering the fact that the $ 195.00 strike represents a premium of around 1% over the current trading price of the stock (in other words, it is out of the game by this percentage), there are also the possibility that the covered call contract will expire worthless, in which case the investor would keep both their shares and the premium received. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 52%. On our website, under the contract detail page for this contract, Stock Options Channel will track these quotes over time to see how they change and will publish a graph of these numbers (the option contract negotiation history will be also traced). If the covered purchase contract expires worthless, the premium would represent an increase of 4.54% in the additional return to the investor, or 38.56% annualized, which we call the YieldBoost.
The volatility implicit in the example sales contract is 46%, while the volatility implicit in the example sales contract is 44%.
At the same time, we calculate that the real volatility over twelve months (taking into account the closing values of the last 252 trading days as well as the current price of $ 192.60) is 33%. For more put and call option ideas worth considering, visit StockOptionsChannel.com.
Best S&P 500 YieldBoost Calls »
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.