[Options Strategy] Can Alibaba buy bottom before earnings report?

$Alibaba(BABA)$ will release its financial results for the second quarter of fiscal year 2024 (natural year is the third quarter of 2023) on November 16. According to Bloomberg analyst estimates, Alibaba's fiscal 2024 second quarter revenue of 223.98 billion yuan, adjusted net profit of 40.072 billion yuan. There are 48 recent "buy" ratings from analysts with an average price target of $137.17.

Analysts expect the revenue of Alibaba Taotian Group in FY24Q2 to reach 99.93 billion yuan, yoy+6.6%. 23Q3 The growth of overall residential retail consumption slowed down, the growth rate of online consumption was weak, the growth rate of online retail sales of physical goods declined compared with 2Q, and CMR still maintained positive growth year-on-year. The overall revenue of cloud business was 28.49 billion, yoy+5.7%. International Business segment revenue yoy+32.8%. Local living income yoy 16.8%; Rookie income yoy+11.0%.

Historical earnings share performance

Prior to BABA earnings releases, the average expected earnings move was ±5.8%. The actual move averaged ±4.1%. The opening gaps averaged ±4.0% while the stock drift after the open tended to move ±3.3%.

Option expectation

The implied volatility of options expiring in the reporting week is 46%, the expected stock price trend of the company during the reporting period is ± 5.20 US dollars, the price range of the expected rise and fall is 79.6 ~ 90, and the maximum rise and fall is estimated to be 6%.

In the report week expiration (November 17), the open position of call options accounted for 65%, and the exercise price of the highest open position was 80, of which the put option accounted for 73%$BABA 20231117 80.0 PUT$ . The second largest proportion of open position is 85 and 90.

options active

At present, BABA's stock price is in the bottom range, and the large option order shows that the institutional bullish strategy is more conservative, and it is more inclined to sell BABA put options:

$BABA 20240920 80.0 PUT$

Option strategy

According to the pre-earnings share price performance in Figure 1, the strategy with the highest current win rate is the bear market call spread strategy:

• sell $BABA 20231117 88.0 CALL$

• buy $BABA 20231117 92.0 CALL$

According to the calculation of the Tiger app portfolio option computer, when Ali's stock price is below 88.5 on November 17, it can make a profit of $85, and the total margin of the strategy is only $400.