Getting Action With Options As Alibaba Pulls Back

Whether you are paying attention to the news headlines, the CEO or the charts, all signals point to a buy for Alibaba. Since it went public in September at $68, BABA has skyrocketed. With the beginnings of a long trend emerging on the weekly chart, we are seeing an entry point for a trade in BABA using options.

Alibaba has been making higher highs since October 20 as it moved from $89.51 to $120. I've been waiting to see BABA pull back on the daily chart and November 11 it did. A retracement to the 8ema at $113 would provide a starting place to attempt an entry in to BABA. I would look to start with a pilot position and be willing to add to the position down to the 21 EMA at $106.

I am looking for a retracement to the daily 8 period exponential moving average at $113 since BABA is in such a strong uptrend. Normally I would wait for a deeper retracement but since we have not seen anything but shallow drops since BABA stormed to the market, this small retracement is my signal.

I will buy a December $108 call for $10. Buying the option rather than the stock allows me to be involved in this stock without the higher price tag of buying the stock outright. I also benefit from similar price movement when I buy an option that is in the money (a strike that has value). My goal is to exit when BABA makes new highs and pushes to the $125 level.

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