In early May,
Alibaba Group Holding's
The stock is on the brink of excess stardom that few companies have achieved in the stock market.
Alibaba shares (greta: BABA) are trading at $ 195. The stock seems to be waiting to cross $ 200, and will enter the stock market pantheon of world-class stocks with triple-digit stocks. share prices and product strategies that define commercial markets. Other stocks fall into this category
But Alibaba's former hobgoblin has reaffirmed itself, and the company is now more determined not by what it does, but by which it is based. Alibaba remains a proxy for China.
Investors aren't really focused on a string of news-friendly news and they've even discounted Alibaba's strong business model – think Amazon,
(PYPL) and many other leading companies roll in one. Instead, investors remain committed to the fact that Alibaba is based in Hangzhou, China.
This doesn't make sense, per se, since the US trade war with China which should end in the spring dragged into the summer and showed no signs of ending.
Today, with Alibaba stock trading around $ 159, down some 19% from the high of May, the company faced one of its most critical earnings reports on Thursday.
If Alibaba's business is worthy of respect as the analysts argue, the stock is likely to rise higher in response to earnings. A good report, and especially any positive that the company's executives say about the future, will focus investors' attention on Alibaba's diverse portfolio, and the power of the business, offsetting widespread fears about the impact of the trade war with China's economy and thus Alibaba's business.
With the stock around $ 159, investors can buy a call to Alibaba for August $ 160 ending Friday, and sell the August $ 157.50 also set on Friday.
The return on risk – that is, buying a call and selling a put with a lower strike price but the same expiration — was generated by a credit of 10 cents. In other words, anyone who agrees to buy Alibaba stock this week for $ 157.50, while participating in any rally above $ 160, may be paid $ 10 for each contract they exchange.
(The value of calls increases when the associated security increases. Puts an increase in value when underlying security decreases. A contract option represents 100 shares of underlying stock. Premium.)
The stock has gone from $ 129.77 to $ 195.72 over the last 52 weeks. So far this year, the stock has been up 16%, though it has dropped about 11% over the past year.
The risk to this trading is that Alibaba's stock could be lowered if the earnings report cast investors. If the stock is at $ 150, for example, investors are obligated to buy the stock at the $ 157.50 strike price, or to cover the put for $ 7.50. The risk is real, especially at a time when a lack of trade war resolution is a determinant of market truth.
Identify heightened risks, which are likely to be reduced in the long run by the breadth and depth of Alibaba's dominant position as a leading way to invest in China's rising middle class.
Besides, as recently mentioned, it is also reasonable to consider a China-First approach in the hope that trade war can motivate the people of the country to take a step further, and in favor of those Chinese goods and companies more than anything else.
It is true that there is much controversy around such sentiments, and the danger of trade war may pale in comparison to the political protests that now sweep Hong Kong, but this is a fact: if not for those issues than the opportunity to buy Alibaba until now below the recent high prices would not have.