Alibaba Group Holding Ltd (BABA)

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Short Alibaba Stock for High Probability Profits
By: Investorplace | September 28, 2018

This BABA bear call should do the trick

Uptrends litter the landscape in U.S. stocks. Finding a bullish beauty is a simple dart-throwing exercise. But Chinese stocks are a different story. The entire emerging-markets complex has been locked in a downtrend for months. And that has me eyeing Alibaba (NYSE:BABA) for a short trade. BABA stock just rebounded to resistance presenting an attractive low-risk entry for the grizzlies among us.

As shown in the weekly time frame, Alibaba recently slipped below a critical support threshold at $166. For three weeks the Chinese juggernaut has tried to rise back above this broken floor, but to no avail. Couple that with the downtrend that the stock now finds itself stuck in, and I think short trades are worth a shot.



Shorting downtrends at resistance is a low-risk, high-reward venture. If BABA stock succeeds in busting back through the ceiling at $166, traders can exit swiftly with minimal losses. But if it falls back to its prior pivot low near $153, then large rewards are in the offing.

The descending channel that has defined the stock’s behavior since June is highlighted in the chart. The falling moving averages are also confirming the bears’ dominance.



BABA Bear Calls

Options traders have a variety of strategies at their disposal for gaming the coming weakness in Alibaba. One of my favorite ways to position here is the bear call spread. The trade essentially consists of selling out-of-the-money calls that we anticipate will expire worthless. It establishes a wide profit range with plenty of margin for error if BABA rallies further before succumbing to gravity.

Sell the Nov $185/$190 bear call spread for 70 cents. The potential reward is 70 cents and will be yours to keep if the stock sits below $185 at expiration. The initial cost is $4.30. To minimize the damage if bulls somehow wrest control of BABA, exit on a break above $185.

https://investorplace.com/2018/09/short-alibaba-stock-for-high-probability-profits/

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