With this post, I want to provide a trade analysis of a very profitable trade which I closed recently in the Alibaba stock.
Just some days before the Earnings(17th August) of $BABA, I noticed a strange open interest(OI) cluster in the 200USD call options with expiry on 25.08.2017. After further checking the OI’s on other strikes my assumption was that this cluster was based on naked in the money short puts with a delta of 1 – this means the profit loss scheme is pretty much the same as with a long stock engagement but it is possible to reduce margin by the use of such a strategy. The mentioned cluster was consisting of ~3100 options which is today already closed. It could be assumed that an insider was involved due to the positive earnings but nobody knows and it certainly does not influence our decisions for such a speculation. When big money moves we have to watch out for it.
Due to positive earnings and this OI cluster I was able to make quite a nice profit in just a few days. I chose to trade out of the money short puts and some long stocks secured with a long put. I was able to enter the $BABA stock at a price of 159,5 USD – today it reached nearly 178 USD which is a pretty nice move in such a short time. After this trades and positive earnings I was able to make further profits with some more OTM short puts.
In general, I have to say that Alibaba could hold their ground pretty good in comparison to Amazon (AMZN) which is down a few percents from their top.
I will definable increase my stock scanning cycle in the future in order to find other nice opportunities supported by positive OI’s.