NaughtyPines

BABA EARNINGS SHORT STRANGLE

NYSE:BABA   ALIBABA GROUP HLDG LTD
BABA ( IVR             82/IV 83), like COH             , announces earnings on 10/27 premarket, so look to put on a play on 10/26 during the New York session.

I have looked at both an iron condor setup, as well as a short strangle setup for the Oct 30th expiry. An iron condor is somewhat inflexible on the call side for the Oct 30th expiry, since the calls are five wide 85 and above (i.e., 85, 90, etc.), and I generally don't like to go five wide with iron condor setups or credit spreads.

One iron condor possibility:

Oct 30th 64.5/67.5/82/85
POP%: 70%
Max Profit: $77/contract
BPE: $223
BE's: 66.73/82.77

In order to accommodate the unruly call strikes, I've pushed the short call one strike down in order to set up a three-wide. Not ideal, but you have to go with what you're given to work with.

In this particular case (since I have the buying power available), I am going to go with a short strangle due to the greater premium, higher POP%-age, more accommodating break-evens, and ease in trade management post-earnings:

Oct 30th 67.5/83 Short Strangle
POP%-age: 76%
Max Profit: $127/contract
BPE/Max Loss: Undefined
BE's: 66.23/84.27
Filled 67.6/83 short strangle for a 1.27 credit. Post-earnings: covered short put for .02 debit; covered short call for .42 debit (50% max profit). 1.27 credit -.44 debit = .83 profit per contract ($83).
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