Today marked a significant milestone for investors in Alibaba Group Holding Ltd (Symbol: BABA) as the January 2027 options contracts made their debut. With 851 days until expiration, these fresh contracts present a unique opportunity for traders seeking to capitalize on time value. This extended timeline could result in more lucrative premiums for sellers of puts and calls compared to contracts with nearer expirations.
Delving into specifics, the $80.00 strike put contract carried a bid of $12.10. By opting to sell-to-open this put contract, an investor commits to buying the stock at $80.00, offset by collecting the premium, effectively reducing the cost basis to $67.90. For those eyeing BABA shares, this strategy could offer an enticing alternative to the current market price of $83.58 per share.
As the $80.00 strike represents a roughly 4% discount from the stock’s current trading price, there exists a possibility that the put contract may expire without value. Current analytics peg the odds of this outcome at 67%. Stock Options Channel will closely monitor these probabilities, illustrating any fluctuations over time. A favorable expiration would yield a 15.12% return on investment or 6.49% annualized—what we call the YieldBoost.
Turning to the calls side, the $90.00 strike call contract stood at a bid of $15.75. Should an investor purchase BABA shares at $83.58 and simultaneously sell-to-open this call contract, setting up a “covered call,” they lock in a commitment to sell at $90.00. Factoring in the premium, this maneuver could net a total return of 26.53% at the January 2027 expiration (excluding dividends).
However, if Alibaba’s stock price experiences a significant surge, potential gains might remain unrealized. Therefore, scrutinizing BABA’s twelve-month trading history and business fundamentals becomes imperative. The $90.00 strike, representing an 8% premium to the current trading price, may lead to a scenario where the call contract expires worthless. Current data suggests a 40% likelihood of this scenario. A null expiration would allow the investor to retain both the stock and the premium, providing an additional 18.84% return or 8.08% annualized, known as the YieldBoost.
Implied volatility was recorded at 35% for the put contract and 39% for the call contract. Actual trailing twelve-month volatility, calculated at 33%, further underscores the dynamic nature of these options. For more insights into put and call options, do visit StockOptionsChannel.com.