Alibaba Stock Soars After Singles Day. How to play it with options.
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Photography by Andrew Burton / Getty Images
The Asian consumer is alive and well, and so is he
Alibaba Group Holding .
In just one minute and eight seconds, consumers spent $ 1 billion on Alibaba's (ticker: BABA) annual Singles Day shopping event. The event set a new spending record of $ 38.3 billion, up from $ 30.8 billion the year before, and hinted that fears of an economic downturn in China could be exaggerated. If this view proves to be true, Alibaba's shares should move into a new trading area.
Alibaba's shares are already up 37% this year, compared with about 20% for
S&P 500.
The long, painful trade war in the US and China was meant to cool Alibaba's stock, but all that has really happened is that investor sentiment has been faltering in response to many morose headlines. Now the stock sits near the top of a trading range, and the big question is whether stocks can push past a 52-week high of $ 195.72. Over the past year, the stock's low was $ 129.77.
Although the stock has performed so strongly this year, investors should remain bullish on Alibaba as a great, long-term company. To position – either to establish new positions or to add existing holdings – investors can sell sales to buy the stock at a price drop, and also buy upside calls to make any progress.
With the stock around $ 185, investors can sell $ 180 dollars for $ 9.65 for February and buy the $ 190 call for $ 10.50.
The risk change – that is, selling a put and buying a call with a higher strike price, but the same expiration – is used when investors want to own the stock at a lower price and take advantage of any rallies.
The strategy obliges investors to buy the stock for $ 180 or cover short put. Should the stock be at $ 210 at expiration, the call is worth $ 20.
This confidence in Alibaba – a view this gap has had since the company first sold shares on the New York Stock Exchange – reflects an appreciation for the e-commerce giant's inner workings. Many investors are no doubt focused on Alibaba as a proxy in China, and they are unable to see the company's power.
On Singles Day, which is really like a glam event, most people just focus on headlines like total sales, and if this year beat last year's record. The more correct focus is on boring things that demonstrate Alibaba's inner behavior.
Alibaba's global supply chain generates more than 200,000 brands and 500 million users. A decade ago, when the festival began, there were only 27 merchants. At that time, Alibaba's main goal was to raise awareness about the value of online shopping. The Chinese consumer seems to have learned quickly.
Skepticism towards Alibaba remains. Some investors are still struggling to see Alibaba as a way to make money off the growth of China's middle class. Others lose the company's accounts. Let them continue to doubt. Since 2014, when the company sold shares on the New York Stock Exchange, shares have received about 170% off the offer price of $ 68. Now it is expected that Alibaba will also list shares on the Hong Kong stock exchange, and some investors worry it too bad sign.
In reality, the double listing is another sign that Alibaba is a business star and that the company, like many other giants, will shine bright in another constellation of capital markets that should attract even more investors.
