Alibaba hit a new record intraday high on Friday, and TradingAnalysis.com founder Todd Gordon says the stock will see even more new highs when it reports earnings next Thursday.
“The stock had been consolidating in September, October and right through the end of 2017,” But in 2018, markets overseas are booming, he said. “We’re seeing a nice push up.”
This breakout of consolidation leads Gordon to believe the next leg up is upon us. He also noted that the stock broke above resistance at US$190, which becomes support. He establishes this as a key level to watch into earnings.
To take advantage of the rising implied volatility, or the price of options, going into Alibaba, Gordon wants to make a bullish bet on the stock by selling a put spread.
Specifically, he is selling the February 2 weekly 192-strike calls and buying the February 2 weekly 197-strike calls for US$1.95 credit.
This means that if Alibaba closes above US$197 on February 2 expiration, then Gordon would receive the US$195 credit on the trade.
If Alibaba closes below US$192 on Febuary 2 expiration, Gordon could lose US$304.
However, because Alibaba is already trading at US$198.24, above the higher put strike level in Gordon’s trade, he believes that the probability of the stock dropping by that much is small.
So far this year, Alibaba has soared about 15 percent.