Last fall, we witnessed the coming out party – and the biggest IPO ever – of Alibaba. There is nothing more exciting than a hot new issue, and the buzz around this one got everyone’s juices flowing.
Alibaba is one of the biggest online retailers in the world, serving more than 300 million users in China and currently working to expand their mobile presence. Just like Amazon, they offer great prices and excellent customer service. Of course, their location in the most populous country on the planet ensures a large footprint, but their earnings margins have been described as “ultra strong” and “bullet proof.”
From the technical side, we played Alibaba after the steep market drop in October – and boy, did we win big! Alibaba is a great example of what we do every day in our Explosive Options Chat Room: spot a great opportunity, define risk, and watch the charts and technicals so we can time the bet just right.
Now, one of the problems with a new issue is the lack of data, which makes trend analysis very difficult. We tracked price and volume trends, which were setting up nicely when the stock found its first low in mid-October, just a month after the IPO.
As we watched the charts, we could see the potential – watch the video, and I’ll show you where the entry point was. The setup was great, with secondary indicators supporting a position.
We managed the trade over a couple of months. When the price moved strongly in our favor, we banked an 80% gain. We stayed with the name, rolling up calls to a higher strike, and we cashed out that trade with a 150% gain.
Since then, we have not played Alibaba – the conditions have just not been favorable for a trade.
