How to trade BABA using options (wheel strategy)?

Gazillionaire

Gazillionaire

Say you want to buy up to 400 shares of BABA in the current $130 range to $100. How do you implement an option wheel strategy in the meantime to make some extra cash while waiting for a $10 stock gain?

Buy 100 shares@$130, sell 1 monthly call contract@$140
& sell 1 monthly put contract @$120.
Price drops below $120, now you have 200 shares@ $125 avg.
Now sell 2 monthly call contracts @$135 & sell 1 monthly put contract @$110.
Repeat until price drop to $100.

Is there a more efficient monthly option strategy?
 
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Gazillionaire said:
Say you want to buy up to 400 shares of BABA in the current $130 range to $100. How do you implement an option wheel strategy in the meantime to make some extra cash while waiting for a $10 stock gain?

Buy 100 shares@$130, sell 1 monthly call contract@$140
& sell 1 monthly put contract @$120.
Price drops below $120, now you have 200 shares@ $125 avg.
Now sell 2 monthly call contracts @$135 & sell 1 monthly put contract @$110.
Repeat until price drop to $100.

Is there a more efficient monthly option strategy?
More...

How much capital are you allocating to this?
 
Only 1 question

Where are you going to sell the stocks if the adr stops operating which is a matter of time? That's why BABA fell so much itfp
 
Gazillionaire said:
Say you want to buy up to 400 shares of BABA in the current $130 range to $100. How do you implement an option wheel strategy in the meantime to make some extra cash while waiting for a $10 stock gain?

Buy 100 shares@$130, sell 1 monthly call contract@$140
& sell 1 monthly put contract @$120.
Price drops below $120, now you have 200 shares@ $125 avg.
Now sell 2 monthly call contracts @$135 & sell 1 monthly put contract @$110.
Repeat until price drop to $100.

Is there a more efficient monthly option strategy?
More...

Thanks for pointing out this option wheel strategy. I didn't know about it and I'll take a look.
However, I am more used to single, i.e. not repeated, stock/option transactions, I plot the results (Plot1), just in case you are interested in having a look at what could be the yield profile of the first transaction you proposed using the closing prices of next February 18 expiration.

Sell 1 CALL 140 @ 4.8 (1th leg) & sell 1 PUT 120 (2nd leg). Buy 100 BABA shares@$130,

Your strategy is labeled 'SSL' on the plot. 'SSL' means that you are shorting the first leg and the secong leg (S) and are going long on the underlying (L). The yield of other types of strategies is also plotted. I enclose also a boxplot (Plot2), where it is clear that the most conservative (less risky) strategies at these prices would be 'LSS' or "SLL'.
 

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Gazillionaire said:
400 shares is about $65k++
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so you are allocating 65k and taking 120k of downside risk and hoping to martingale if the stock sells off. At some point you will have a substantial permanent impairment of capital - for example if you did this with Chinese education stocks or with cruise ship stocks through 2021 (after the initial pandemic news was priced in)
 
newwurldmn said:
so you are allocating 65k and taking 120k of downside risk and hoping to martingale if the stock sells off. At some point you will have a substantial permanent impairment of capital - for example if you did this with Chinese education stocks or with cruise ship stocks through 2021 (after the initial pandemic news was priced in)
More...

How is it $120k downside risk when I only buy 400 shares?
 
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i personally trade only BABA options too with capital of 150K set up at TDA since September 1, 2021. i have 7 strategies on hand with BABA shares and options combined:
1. covered call
2. sell otm puts (cash secured puts, meaning i sold only 10 lots)
3. iron condors
4. sell otm puts first and when the prices go up, sell calls
5. protective puts and selling calls (something like Collar strategy but with c/p having different expiration days, ie. puts having six month horizon and calls being weeklys )
6. short strangles
7. some forms of butterfly (rarely used)


i only pick one stock underlying at a time, now is BABA. I am located in Taiwan. I am struggling because i started to trade BABA when the stock was at 170 back then. Now i believe the worst trading days for the stock may be over and CC would be a decent strategy down the road. But i don't recommend using any leverages and when trading only its options, trade conservatively to enjoy the relatively high implied volatility (higher premium income)
 
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