Call Options Or Put Options On Alibaba (BABA)?

| November 5, 2014 | 0 Comments

cboeChina’s online and mobile commerce giant Alibaba (BABA) just reported earnings. Since this is the first earnings since the company’s big IPO, there’s plenty of action in the stock this week.

BABA shares are currently trading at $109.73. The stock is now trading 3% above the previous 52-week high of $106.36 and is 33% above the 52-week low of $82.81.

Is this an opportunity to buy call options on BABA because of its strong growth? Or should you buy put options on BABA because of its shrinking margins? 

The bulls make a convincing argument…

BABA pretty much beat across the board. Take out stock-based compensation due to the recent IPO, and BABA’s numbers look even better.

Merchandise volume rose a whopping 50% year-over-year, which is incredible. Mobile revenues also climbed nearly 10x from a year ago and account for over 20% of revenues. Mobile monthly active users also climbed to 217 million.

BABA now has a bigger market cap than even Wal-Mart (WMT). And, the company’s growth is projected to continue at this impressive pace.

But the bears have a compelling case as well… 

On the other hand, BABA’s margins did fall from 54.5% to 50.5%. Is this the start of a trend? With retail giants, margins will be closely watched by investors.

BABA is also trading at over 56x earnings. As fast as the company is growing, it still has to put up extremely robust numbers to justify the current valuation.

Don’t forget Amazon (AMZN). The company trades at a very high valuation with razor thin margins. Eventually investors will jump ship if the results don’t match up to the hype.

So is it time to be bullish on BABA due to impressive earnings or should you take a bearish position because margins could be a future concern?

If you think the bulls are right, take a look at buying the BABA December 20th 120 calls for around $2.00. 

If you think the bears are right, take a look at buying the BABA December 20th 100 puts for around $2.00.  

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.