Alibaba - new put warrant available ahead of tomorrow's result announcement
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Yesterday, Chinese internet giants saw a sell-off after Bloomberg reported that some analysts are expecting mixed earnings due to steady sales growth, higher AI spend, investment gains and margin pressures
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$BABA-W(09988)$ , due to report tomorrow night, closed 3.7% lower at HKD 133.90 yesterday
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Yesterday's drop, combined with that on Friday's, erased half of Alibaba's month-to-date (MTD) gains of 11.8%
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Trending Alibaba call warrant $Alibaba MB eCW261005(NNTW.SI)$ (https://warrants.com.sg/tools/HistoricalPerformance/NNTW) is up 32.3% to SGD 0.041 this month, given Alibaba's +6.3% MTD climb
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This morning's newly listed Alibaba put $Alibaba MB ePW261005(JCJW.SI)$ (https://warrants.com.sg/tools/livematrix/JCJW) costs SGD 0.033 with Alibaba trading at HKD 133.90 and will increase approximately 4.4% given a 1% drop in Alibaba shares, based on its effective gearing level as of 912AM
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Alibaba shareholders interested to use JCJW as a hedge ahead of or on the back of its result announcement can use the Exposure Simulator tool (https://warrants.com.sg/tools/exposuresimulator/JCJW) to estimate the performance of the put warrant given a short-term pullback in Alibaba shares
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For example, assuming an investor currently owns 5,000 Alibaba shares which are currently worth SGD 108,660, the investor can invest approximately SGD 24,695 to buy into 796,600 units of JCJW at SGD 0.031
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The reason for the smaller investment outlay is due to the warrant's effective gearing level of 4.4 times i.e. an investor's exposure via JCJW has been magnified by 4.4 times
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Should Alibaba shares fall 6.6% to HKD 125 in the near-term, the put warrant gain of 29% from SGD 0.031 to SGD 0.040 will generate an absolute return that will match the SGD 7,222 share price loss for the Alibaba shareholder
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If Alibaba shares head higher post results instead of falling, investors who bought the put warrant ahead of its results may wish to cut losses in their "insurance hedge" via JCJW
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