How to Trade Alibaba Like a Pro

April 22, 2015 3:40 pm

In the past several months, Alibaba, China’s largest e-commerce company, has made the front page of the top financial papers time and again. Many of the news stories covering Alibaba have had direct consequences on the company’s stock price, often causing the price of BABA to rise or fall based on the information in the articles.

To profit from the volatility of Alibaba stock, a trader must choose a profitable method to trade the stock, while understanding the place of Alibaba within today’s economy.

A great way to make money from Alibaba’s ups and downs is by trading the stock with a binary trading platform. When trading binary options, traders must decide whether the price of a particular asset (like BABA) will be higher or lower within a set amount of time. Binary traders can buy “Call” options when they believe the price is set to rise, or “Put” options when they believe the price is set to decrease.

Alibaba

Let’s look at an example.

On October 14th (2014), Forbes Magazine ran a story called “Costco Makes China Debut through Alibaba.” The story was about Costco Wholesale Corporation’s decision to enter the Chinese market for the very first time. Costco’s executive vice president, Jim Murphy, had released a statement, saying: “Costco sees tremendous growth opportunities in China, especially in light of Chinese consumers’ increasing appetite for imported products.”

The report was significant in that it showed how Alibaba could be an excellent partner, not just for Costco, but for any foreign company that wished to expand its operations into China. With over 7 million sellers on the Alibaba site, offering 800 million items, Alibaba was proving that it was perfectly positioned to gather an immense amount of valuable data regarding the purchasing decisions of the world’s most populated country.

Within a week, Alibaba stock rose from 85 to 91. This price increase could easily have made a binary trader money by predicting how the news would affect the stock price. In this case, by logging in to your binary trading platform and placing a “Call” option with a 1-week expiry time, a trader could have made a 70% profit on the amount of money placed on the trade.

Let’s look at a second example.

In late January (2015), China’s State Administration for Industry and Commerce (SAIC) filed a highly critical report about Alibaba and the counterfeit merchants selling products on the site.

The report stated: ““For a long time, Alibaba hasn’t paid enough attention to the illegal operations on its platforms, and hasn’t effectively addressed the issues.” The report also stated that Alibaba employees were going so far as accepting bribes from these counterfeit merchants in exchange for allowing them to continue their activities on the site.

Jack Ma, Alibaba’s Founder and CEO, immediately responded to the allegations saying that they were completely uncalled for, and exaggerated. But, the damage was already done. After all the hype surrounding Alibaba’s IPO, traders were sure that this company was an unstoppable force. Upon reading the negative news, a big chunk of investors rushed to sell their BABA stock, and in reaction, the price of BABA stock fell sharply. Within 6 days, the price of BABA fell from 104 to 89, a 13% decrease.

If a trader wished to profit from this decrease in Alibaba’s stock price, he or she could easily have done so with a binary trading platform. For example, by placing a “Put” call on Alibaba stock the day the damaging news came out, with an expiry time of one week, a trader could easily have been in-the-money, and made over 70% profit on his, or her, trade.

Trading Alibaba Stock

Traders should understand that news articles often have immediate effects on the companies which they wish to trade. As with other stocks, good news about Alibaba can cause investors to rush to buy the company’s stock, and the more buyers wish to purchase an asset, the higher its price goes. The same way that good news can make investors optimistic, negative news about Alibaba can also come along and make investors pessimistic, thereby cause them to sell their shares, and the price will fall.

Binary options is a great way to profit from the price of an asset rising or falling. By placing a “Call” trade when good news is released about the company, or a “Put” trade when bad news is released, traders can easily make large profits in a short amount of time.

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