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How long-term investors can earn income or buy Alibaba at a discount with options
Koen Hoorelbeke
Investment and Options Strategist
Note: This is marketing material.
How long-term investors can earn income or buy Alibaba at a discount with options
June 2025 brings Alibaba (BABA) into focus for cautious investors: the company has declared a new dividend, posted strong earnings, and is seeing its share price swing on regulatory headlines. With option premiums higher than usual, two conservative strategies—covered calls and cash-secured puts—can help investors generate extra income or buy BABA shares at a lower price.
What you need to know first: Key terms explained
- Option: A contract giving the buyer the right, but not the obligation, to buy or sell a stock at a set price by a certain date.
- Covered call: You sell a call option on shares you already own, agreeing to sell those shares at a set price if the option is exercised.
- Cash-secured put: You sell a put option, agreeing to buy shares at a set price if assigned, and set aside enough cash to buy the shares if required.
- Premium: The income you receive for selling the option.
- Strike price: The agreed price at which the shares may be bought (put) or sold (call).
- Expiry date: The last day the option can be exercised.
Why BABA is timely in June 2025
- Dividend: You must hold BABA through 12 June to receive the new annual and special dividend (about $1.05 per share).
- Recent strong earnings: The company reported rising profits and growing cloud/AI revenue, supporting long-term value.
- Regulatory news and volatility: Ongoing headlines create larger swings in the share price, which increases option premiums and makes income strategies more attractive.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
The following sections explain each strategy on its own. You can choose either approach independently, based on your goals and portfolio—there’s no need to use both together.
1. Covered call: Earn extra income from shares you own
Who is this for?
You already own at least 100 shares of BABA and would consider selling them at a higher price, in return for extra income now.
How it works:
- Sell 1 covered call contract (strike $128, expiry 20 June 2025)
- Current share price: $120.20
- Premium received: ~$1.29 per share ($129 for 100 shares)
- Dividend: ~$1.05 per share (if held through 12 June)
- What are the outcomes at expiry?
- BABA stays below $128:
You keep your shares, the $129 option premium, and any dividend received. - BABA rises above $128:
Your shares are sold at $128 each. You keep the $129 premium, the dividend, and the profit from $120.20 (today’s price) to $128.
- BABA stays below $128:
- Risk and reward:
- Your maximum upside is capped at $128 + premium + dividend.
- If the price rises well above $128, you will not benefit beyond that price.
- If the price falls, the premium and dividend provide a cushion, but you still own the shares.
2. Cash-secured put: Earn income for being willing to buy at a lower price
Who is this for?
You have cash and want to buy BABA only if the price falls to $113 by 20 June. You’re happy to get paid for waiting, or to own the shares at a discount.
How it works:
- Sell 1 cash-secured put (strike $113, expiry 20 June 2025)
- Premium received: $1.22 per share ($122 for 100 shares)
- Cash required: $11,300 (in your account, in case you have to buy the shares)
- What are the outcomes at expiry?
- BABA stays above $113:
The option expires worthless, you keep the $122 premium. - BABA falls below $113:
You buy 100 shares at $113. The real cost per share is $113 – $1.22 = $111.78.
- BABA stays above $113:
- Risk and reward:
- You must be prepared to own BABA shares at an effective price of $111.78.
- If the stock falls much further, your loss is the same as if you had bought shares at that lower price, but your premium provides a small buffer.
Strategy summary table
| Strategy | What you do | If BABA ends above strike at expiry | If BABA ends below strike at expiry | Net effect (approx.) |
|---|---|---|---|---|
| Covered call | Sell $128 call on shares you own | Shares sold at $128, keep premium and dividend | Keep shares, keep premium and dividend | Max gain = (128 − 120.20) × 100 + $129 + dividend. If not assigned, keep premium/dividend and try again. |
| Cash-secured put | Sell $113 put, hold €11,300 cash | Keep premium, no shares bought | Assigned 100 shares at $113, less premium | Max gain = $122 premium. If assigned, buy at $111.78 (strike − premium), lower than current price. |
All figures based on market data as of 5 June 2025. See detailed scenarios above.
How do these strategies fit cautious, long-term investors?
- Income focus: Both methods pay you upfront premium, and for covered calls, possibly a dividend as well.
- Risk control: You’re either selling at a profit (covered call) or buying at a discount (cash-secured put).
- No leverage: You only use cash you have or shares you already own, limiting the risk of losses beyond your investment.
- Clear outcomes: You always know your best and worst-case scenarios up front.
Frequently asked questions
What if the share price moves sharply before expiry?
Your outcomes are predetermined: with the covered call, your upside is capped but you keep the premium; with the put, you must buy at $113 (or keep the premium if the option isn’t exercised).
Can I get out of the trade early?
Yes, you can buy back the option at any time. Depending on market moves, this may result in a loss or gain.
Why do I need to set aside the full cash amount for the put?
Saxo requires that you have enough cash in your account to cover the potential purchase of shares if you are assigned. This ensures your risk is limited to the amount you agree to invest.
Conclusion
Options strategies like covered calls and cash-secured puts can give long-term investors additional ways to put their portfolios to work—either by earning extra income on shares you already own or by buying quality stocks like Alibaba at a lower, pre-agreed price. These approaches are designed for investors who prefer transparency, simplicity, and control, with clearly defined risks and outcomes from the start.
At Saxo, we believe that adding carefully selected options strategies to your investment toolkit can help you manage market swings and pursue steady returns, even in uncertain times. Before you start, take the time to review your personal objectives, understand each scenario, and use the resources on our platform to learn more about how options can support your long-term goals.
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