Shares rose by 31.9% over 55 days, or a +212% annual rate. The options positon produced a -58.5% loss on debit for a -388% annual rate.
The online and mobile commerce company Alibaba Group Holding Ltd. (BABA), headquartered in Hangzhou, China with principal trading in New York, closed below its 20-day price channel on Wednesday, sending a bear signal with high historical odds of success, suggesting a directional trade.
[BABA in Wikipedia]
I shall use the NOV series of options, which trades for the last time 57 days hence, on Nov. 20.
BABA completed four bear signals in the past 12 months. Three were successful, each on average yielding 10% over 62 days. The one unsuccessful signal lost 14% over 15 days.
The success rate was 75%.
Click on chart to enlarge.
|BABA at 10:50 a.m. New York time, 1 year daily bars, with implied volatility|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money
The premium is $1.05 which is 42% of the width of the position’s wings. The stock at the time of purchase was priced at $58.58.
The risk/reward ratio is 1.3:1.
Decision for My Account
I've opened a bear call spread on BABA as described above. The company publishes earnings on Nov. 4.
-- Tim Bovee, Portland, Oregon, Sept. 24, 2015
My volatility trading rules can be read here.
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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.License
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