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Trade Details: Bought to open 4 Oct 28th Alibaba Group Holding ADR (NYSE:BABA) 103 calls for $1.95, $787.11 total cost (33.9% of account), 5 days to go. The trade executed at 10:03:41 when the stock was approximately $104.05.
Potential: Unlimited, but eyeing the $108 level into mid-week to exit the trade before expiration. $103.58 is a critical level on the downside (9-hour moving average), and weakness in the MACD histogram as the trade progresses could trigger an exit.
Thesis: With earnings next week, I am taking a 1-week view of BABA and focusing on the hourly chart (see below). If the trade extends into mid-week, I'll zoom in to the 30-minute view. I like the technical setup here: RSI is bullish, Momentum just crossed into positive territory, Slow Stochastics just made the turn and MACD recently tested the zero line from above and appears to be turning positive.
The market and XLK, and lots of volume coming into the weekly calls, is providing positive support here. BABA doesn't have a consistent pattern of rallying into earnings, but I think the bullish news flow and new ventures provide some upside risk to the upcoming report. Earnings from Apple and Amazon this week will add volatility.