Alibaba Group Holding Ltd (NYSE:BABA) has almost consolidate around the $80 level for the last month. Many feel that the stock could go further down but many other feel that the stock has hit the floor and it is all set to go up from here. Alibaba Group Holding Ltd (NYSE:BABA) stock has dropped more than more than 22% YTD and has lost around 30% since its high back in November. Andrew Keene of Keeneonthestreet.com compared Alibaba Group Holding Ltd (NYSE:BABA)’s trend to Facebook Inc (NASDAQ:FB) trend post its IPO and shared on CNBC his options play to long Alibaba Group Holding Ltd (NYSE:BABA) stock.
Keene said that he is comparing the daily chart trends for Alibaba Group Holding Ltd (NYSE:BABA) and Facebook Inc (NADSAQ:FB), since they were the two hyped IPO’s in US. He pointed out that post Alibaba Group Holding Ltd (NYSE:BABA)’s IPO at around $90, the stock sold off for few days post which it rallied and hit $115 in two months. Alibaba Group Holding Ltd (NYSE:BABA) stock then started losing its value and dropped since then. He pointed out that the stock has consolidated around the $80 mark and he feels that it is the short term bottom for Alibaba Group Holding Ltd (NYSE:BABA).
Keene said that Facebook Inc (NASDAQ:FB) had a different trend post it IPO, when the stock were sold off immediately after the IPO and touched the bottom at $20. He pointed out that Facebook hit the bottom in 4 – 5 months. Alibaba Group Holding Ltd (NYSE:BABA) has also hit the bottom at $80 in 4 – 5 months. Since its bottom Facebook stock has went up by more than 300% and is currently trading at around $80 per share. He feels that we may see some similar trend in Alibaba Group Holding Ltd (NYSE:BABA) stock as well.
Keene shared his options play on Alibaba Group Holding Ltd (NYSE:BABA) to make profits out of the stock.
“[..] So I am looking at the longer term strategy here in Alibaba. BABA. [..]So my trade is pretty simple and easy. I am buying the BABA January 2016 95/105 Bull Call spread for $2. I don’t want to spend that much. I don’t want to spend $2. So what I will do is then I will go and sell the 2016 70/60 Put Spread for a $2 credit. So I am buying the bull put spread to sell a bear put spread for $0. If we look to see where my break even points are and I am giving myself lot of cushion to the downside. Because it’s a chance that BABA could take out $80. [..]So this give me opportunity to long it to the downside and I don’t get to long it for expiration till $70, which is still about another 12% to the downside. So my breakeven on this trade is between $70 and $95 at January 2016 expiration. Above $95 I get long and under $70 I get long,” Keene said.
He feels that Alibaba Group Holding Ltd (NYSE:BABA) is headed to the $105 level at end of the 2015.
Disclosure: None
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