What if Alibaba pops above $110 level and remain there until Nov 22, then potentially this trade would cost this person $110 M dollars? [because he'd need to buy about 10,000*100 BABA shares at $110 to cover the obligation, so the total amount is around $110 millions??? from CNBC " Alibaba shares are up some 45 percent from their IPO price. And in a massive options trade ahead of earnings, one big Alibaba holder appears to be looking to protect those gains ahead of the event. On Tuesday, against a purchase of 500,000 shares of stock, one trader bought 10,000 protective Alibaba "collars" for $1.00 per share. One constructs a collar by purchasing a downside put and selling an upside call. Against a long position, this type of trade allows a trader to get protection on the downside, in exchange for capping profits on the upside. Specifically, in this massive Alibaba trade, the trader bought 10,000 Nov. 7 weekly 94-strike puts for $2.40 per share, and sold 10,000 November 110-strike calls for $1.40 per share. This means that by shelling out $1 million in premium, the trader has protection below $94 through Nov. 7, but misses out on profits on the stock above $110 through Nov. 22. "This was actually the biggest trade since Alibaba options were listed in September," Dan Nathan of RiskReversal.com said Wednesday on CNBC's "Fast Money." "To me, if you have 45 percent gains, let's say you got a good chunk of this on the IPO, this makes sense to protect in front of a potentially volatile event." Read MoreAlibaba's Jack Ma tops Forbes China Rich List Alibaba is set to report earnings for the first time on Nov. 4, and Nathan notes that "we don't know what to expect when this company reports," which has driven Alibaba options prices considerably higher. So ahead of the earnings report, a collar like this "makes sense if you have big gains into a potentially volatile event," he said."
They bought 500,000 shares of stock already. So they would need to buy 500,000 more. They are betting that it won't rally that far. He's betting that the stock will selloff hard or rally a little.
Poorly written article, looks like the trader has Covered Calls and Long Puts. At expiry the following will happen: BABA $110.00 or more. Puts become worthless. BABA stock called away at $110.00. BABA $91.60 or less. Calls become worthless (trader keeps the $1.40 premium). Puts show some profit. Trader keeps his BABA stock. BABA $94.00 - $110.00. Calls and Puts become worthless (trader keeps the $1.40 call premium). Trader keeps his BABA stock.
Thanks newwurldmn and FXforex! FXforex - I think this trader can close his position on the calls anytime before expiration (he's not responsible to hold them until expiration because he's the calls writer)? Thanks
Alibaba crossed $110 mark and closed at $111.5 today. I guess this trader's 500,000 shares of BABA were hauled away or possibly, he cut loss short and closed his position early. Regis Philbin names his favorite stock picks: Alibaba COMMENTShis hedge fund internship, famed talk show host Regis Philbin returned to the CNBC "Fast Money" set on Thursday to share his latest stock picks. "I've gotten involved with Alibaba," he said. "I bought it in its $80s. It hit $111 today." Chinese e-commerce giant Alibaba saw its stock rise 2.67 percent to end the day at $111.57 per share. Read More Regis: I was Einhorn's best summer intern ever Philbin, who is known as "the hardest working man in show business," said he'd had "a good feeling" about Alibaba stock. "And the fact that it was connected with Yahoo, that helps, too." However, the stock pick that put Philbin on the map—and landed him an internship with David Einhorn's Greenlight Capital—was no longer in his portfolio. "I'm out of Micron," he said, alluding to its drop to $28 per share in October from a 52-week high of $34.85. Philbin said he had neglected to tell his former employer but attempted to make it up. "Einhorn, Einhorn," he said in a stage whisper. "Alibaba, Alibaba!" Read More A stock pick that landed Regis a summer internship OptionMonster's Pete Najarian said he liked Philbin's Alibaba and Yahoo picks. "I've been long both for a long time," he said. "Yahoo, when it gets past or through $50, I'm out of that trade, but I think Alibaba does go higher over time. That's one I think you put in the drawer, Regis. Don't look at it. It bobs around, a little bit of volatility. I think this ultimately goes to $150." Philbin also said he had seen gains in his Tesla trade. Read MoreTesla stock heading to $400 per share: Analyst "I played with Tesla," he said. "When it got real deep, real low. And then went up high. Made a lot of money. But all of a sudden it goes up and down, up and down. I'm waiting for it to go down that low again. It hasn't." Private Advisor Group's Guy Adami liked the trade. "I think Tesla's headed up toward $300," he said. "Two-twenty-five has been the level to trade against. It had a decent day today. I still think the trend's to the upside."
According to the article the trader sold the Nov22 110.00 calls at $1.40, so they still have two weeks to expiry. He can buy back the calls at $4.20 to close the position at this time.
would you say there's a good chance the trader was assigned today to deliver his BABA shares (if the people who held the 110 long calls opted to exercise?