Alibaba Group Holding Limited American Depositary Shares Each Representing One Ordinary Share (BABA)just reported earnings on November 2, 2018, before the market opened. Earnings Per Share (EPS) was reported at $1.40, after analysts had expected $1.07 per share. As a result, BABA opened up +0.9%, but dropped later in the day and closed down -2.4% at 147.59. Since earnings was reported, the stock has traded in a range from 144.23 to 154.36.
Price Volatility Against Expectations
Ahead of earnings, option traders were expecting a ± 5.4% move for this date, so the earnings move of -2.4%represents an undersized move against the market. BABA has only experienced 2 larger-than-expected earnings moves in the last 12 quarters.
Earnings Price Patterns
3 Days After Earnings:For 10 of the last 12 quarters (83%), BABA stock price has gone up in the 3 days following earnings. It has had an average gain of +2.0% during that span.
2 Days After Earnings:For 10 of the last 12 quarters (83%), the stock price has gone up in the 2 days following earnings. Over that period, it has an average gain of +1.8%.
Earnings Option Strategies
MarketChameleon's option strategy analysis
shows that selling out-of-the-money calls one day after earnings and buying them back one week after earnings had 92%
winning occurrences, for an average gain of +62.6%
. Additionally, selling at-the-money straddles resulted in 83%
winning occurrences, for an average return of +27.5%
Stock and option trading involves risk may not be suitable for all investors. Examples contained within this newsletter are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This newsletter is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither MarketChameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades.
Note: selling options can result in losses of greater than 100%. Average returns from selling options is calculated based on net change in value against the initial theoretical option value. Prior to buying or selling an option, you should read the Options Clearing Corporation's Characteristics and Risks of Options