Capitalize on Alibaba earnings with options Capitalize on Alibaba earnings with options Capitalize on Alibaba earnings with options

Capitalize on Alibaba earnings with options

Alibaba 5 minutes to read
Saxo

What is happening with Alibaba?

Alibaba has been trading in a range of $67 and $ 78 since November 2023 and it finally broke out from this range and surged near 8% since May this year. The recent surge of the price followed by the company’s announcement of the release of its new AI model which the company claims to beat OPENAI’s GPT-4 in language Skills.

What can you do if you are long Alibaba?

Investors who have a long position and maintain a positive view of the stock. Investors can reduce some of the position while maintaining some exposure by implementing a covered call strategy partially on their existing holdings.

What is Covered call?

Covered call involves two parts strategy 1. purchased or own a stock 2.sell a call option of the stock with strike higher than the price the stock is purchased.

Advantages of covered call. 1. Treating the call option as a limit order. If the stock rises above the strike price, the option will be exercised, it will close the long position of the stock investor has already owned . 2. Receive the option premium. By selling the call option, investor can receive the option premium regardless of how the stock performs.  If the stock does not rise above the strike price, the option will not affect the position the investor is holding.

What if you do not have any position of Alibaba?

If investor has a positive view on Alibaba but does not have any positions of the stock, investor can buy an out of the money call option

The Advantage of long calls 1.Limited Risk. Investors can’t lose more than the premium for the option 2. Leverage. With a small amount of money, investor can gain a much larger exposure in the stock. 3. Potential for asymmetrical gains. If he stock price goes up above the break-even point, you can make the same amount of money with limited risk. 4. Flexibility. You can benefit from a stock’s potential rise without having to buy the stock outright.

Risks of long calls 1. Long call options have a finite lifespan and will lose value over time, particularly if the stock price does not rise above your option strike. If the stock price does not rise above the option strike by expiry, the option will expire worthless. 2. Fluctuations in the stock price can increase the risk associated with long call options, leading to significant changes in the option's market to market value. 3. If the stock price doesn't go above the strike price before the option’s expiry, you might lose all the premium you paid for the option. 4. Long call options are also subject to the influence of macroeconomic factors that can impact stock prices, including interest rate movements, significant events, and major economic shifts.

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Capital Markets' Terms of Use, you will find more information on this in the Important Information - Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Capital Markets' website. This article may or may not have been enriched with the support of advanced AI technology, including OpenAI's ChatGPT and/or other similar platforms. The initial setup, research and final proofing are done by the author.

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.