Established Covered Calls Position in Alibaba Group Holding Ltd.

Today, a second Covered Calls position was established in Alibaba Group Holding Ltd. with a November 15th, 2019 options expiration date.  Alibaba issued their quarterly earnings report early this morning and they were stellar and above expectations, with sales and earnings both increasing 40% compared with the same quarter last year.  Surprisingly to the Covered Calls Advisor, in the pre-market trading Alibaba was trading below yesterday's closing price, so I did something I have never done before and when over a million shares had already been traded in the pre-market, 200 shares were purchased at $176.60 in the Covered Calls Advisor's Portfolio.  After the market opened at 9:30am, the stock price began to increase and at 10:00am with the price at $180.75, 2 November 15th, 2019 Call options were sold at the $182.50 strike price against the 200 shares purchased in the pre-market, which established the Covered Calls position.        

The Covered Calls Advisor considers Alibaba to be a core portfolio holding, so the current intention is to continue the pattern of prior months by establishing ongoing monthly Covered Calls positions in Alibaba.  For this fundamental/value investor, Alibaba continues to be a very attractive investment opportunity.  The current quarter's +40.0% growth rate is excellent for this very large e-commerce company now with 785 million mobile MAUs (monthly active users).  

Alibaba continues to be an exceptional value.  In comparison with the four FANG stocks, it has a higher current growth rate than all of them yet its current P/E ratio of 26.4 is lower than all of them.  Analysts are also overwhelmingly bullish on Alibaba.  According to Reuters, twenty-three analysts rate Alibaba stock as a 'Buy', twenty-three more as an 'Outperform', only one is at 'Neutral', and no one rates it as a 'Sell'.  Their average price target is $220 (24.6% above the current price).     

As shown below, two potential return-on-investment results are: 
(1) +1.9% absolute return in 15 days (equivalent to a +45.6% annualized return-on-investment) if BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration; OR 
(2) +5.3% absolute return in 15 days (equivalent to a +128.4% annualized return-on-investment) if BABA stock rises and is above the $182.50 strike price at Nov. 15th expiration.


Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position

The transactions were as follows:
11/01/2019 Bought 200 shares of Alibaba stock @ $176.60 per share 
11/01/2019 Sold 2 Alibaba November 15th, 2019 $182.50 Call options @ $3.25 per share
Note: The price of Alibaba stock was $180.75 when these Calls were sold and the Implied Volatility of the Call options was 27.1.

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $34,676.29
= ($176.60 - $3.25) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$650.00
= ($3.25 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration): +$0.00
= ($176.60 -$176.60) * 200 shares; OR
(c) Capital Appreciation (If BABA stock is above $182.50 strike price at November 15th expiration): +$1,180.00
= ($182.50 -$176.60) * 200 shares

1. Total Net Profit (If BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration): +$650.00
= (+$650.00 options income +$0.00 dividend income +$0.00 capital appreciation); OR
2. Total Net Profit (If BABA stock is above $182.50 strike price at November 15th expiration): +$1,830.00
= (+$650.00 options income +$0.00 dividend income +$1,180.00 capital appreciation)

1. Absolute Return (If BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration): +1.9%
= +$650.00/$34,676.29
Equivalent Annualized Return: +45.6%
= (+$650.00/$34,676.29)*(365/15 days); OR
2. Absolute Return (If BABA stock is above $182.50 strike price at November 15th expiration): +5.3%
= +$1,830.00/$34,676.29
Equivalent Annualized Return: +128.4%
= (+$1,830.00/$34,676.29)*(365/15 days)