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Alibaba's Earnings: earnings premiums through cash secured put
Alibaba Group Holding Ltd. (NYSE: BABA) is scheduled to report earnings on 20 August 2026. The shares were recently trading at USD 124.09, while options markets continue to price in elevated volatility ahead of the announcement.
For investors who would be comfortable owning Alibaba shares at a lower price, a cash-secured put is one strategy that can generate income while waiting for a potential entry opportunity.
What is a Cash-Secured Put?
A cash-secured put is an options strategy where you sell a put option and set aside enough cash to purchase 100 shares if the option is assigned.
When you sell a cash-secured put:
- You receive a premium upfront.
- You agree to buy 100 shares at the strike price if assigned.
- You keep the premium regardless of the outcome.
- You must maintain sufficient cash to purchase the shares if assignment occurs.
Many investors use this strategy when they would be happy to own a company but only at a lower price than the current market level.
A Case Study with Alibaba
Suppose you'd be happy to buy Alibaba shares, but only if they fell to a lower price following earnings.
One possible approach would be selling the: 21 August 2026 $115 put
- Last traded premium: $1.05 per share
- Bid: $0.97
- Ask: $1.13
- Delta: -0.14
- Open interest: 8,953 contracts
- Expiry: 21 August 2026
Because one options contract represents 100 shares:
- Premium received: $105 ($1.05 × 100)
- Cash required: $11,500 ($115 × 100)
Your effective purchase price would be:
$115.00 − $1.05 = $113.95 per share
This is also your approximate break-even price at expiry.
In other words, if you were assigned the shares, your net cost basis would be approximately $113.95 per share after accounting for the option premium received.
How Could This Play Out?
At option expiry | Share price | What happens | Result |
Above the strike price | Above $115 | Put expires worthless | You keep the $105 premium and no shares are purchased |
Slightly below the strike price | Around $114 | Assignment is possible and you buy 100 shares at $115 | Effective purchase price becomes $113.95 after premium |
Significantly below the strike price | Well below $115 | You are assigned and must buy 100 shares at $115 | You keep the $105 premium, but losses can occur below the $113.95 break-even level |
Premium received: $105
Cash required: $11,500
Effective purchase price: $113.95
Break-even price: $113.95
What Are The Risks?
Alibaba remains heavily focused on artificial intelligence, cloud computing and digital commerce. Recent developments have included continued investment in proprietary AI models, expanding cloud capabilities and strategic partnerships linked to AI deployment in China.
While these initiatives may create growth opportunities, investors should also recognise several company-specific risks:
- AI investments may take longer than expected to generate meaningful returns.
- Competition from other Chinese technology and AI companies remains intense.
- Margins may come under pressure as spending on AI infrastructure continues.
- Regulatory and geopolitical developments could influence investor sentiment and business operations.
- Earnings results that fall short of expectations could lead to significant post-earnings share-price volatility.
From a strategy standpoint:
- The premium received does not eliminate downside risk.
- Assignment may occur if the shares trade below the strike price.
- A large decline in the share price can still result in meaningful losses.
- Capital must remain available to purchase the shares if assigned.
Why Might This Appeal To A Long-Term Investor?
Some long-term investors use cash-secured puts as an alternative to placing a limit order.
The strategy may appeal because it allows investors to:
- Collect option premium while waiting for a potential buying opportunity.
- Predetermine the price at which they would be willing to own the shares.
- Potentially reduce their cost basis through the premium received.
- Generate income even if the shares never reach the desired purchase price.
However, the strategy only makes sense if you are genuinely comfortable owning the shares should assignment occur.
Key Definitions
Strike Price
The price at which you agree to purchase the shares if assigned.
Premium
The amount received upfront for selling the option.
Assignment
The obligation to purchase shares when the option is exercised.
Expiry
The date on which the option contract ceases to exist.
Break-Even Price
The strike price minus the premium received. In this example, $113.95 per share.
Cash-Secured
Having sufficient cash set aside to purchase the shares if assignment occurs.
Delta
A measure of how much an option's price may change for a $1 move in the underlying share price. The selected put has a delta of approximately -0.14.
Open Interest
The number of outstanding option contracts currently open in the market. Higher open interest can indicate greater market participation in a particular strike.