James Ramelli's Options Play On Alibaba

KeeneOnTheMarket.com strategist James Ramelli was on Bloomberg Wednesday to talk about option’s activity in Yahoo! Inc. (NASDAQ: YHOO) following its Alibaba Group Holding Ltd (NYSE: BABA) announcement and share his option trade on Alibaba.

Option Play On Alibaba

"I am looking to buy the Alibaba $104 and $106 call spreads for this week's expiration," Ramelli said. "That has me getting long for an upside target of around $106, which is exactly where the market makers are implying this stock can go by Friday's expiration."

He continued, "I think there's some profit takers coming in this morning and some people that are trimming their exposure ahead of earnings, putting selling pressure on the stock, but that creates a buying opportunity for me as they […] the stock rallied quite a bit on their last earnings call."

In Thursday's premarket, Alibaba reported EPS of $0.81, beating estimates of $0.74.

Related Link: This Hedge Fund Manager Says 'Stay Away' From Alibaba

Option Activity In Yahoo Post Alibaba Spin-Off Announcement?

"We are seeing some relatively bullish order flow in Yahoo," Ramelli said. "The question that traders are asking themselves right now is exactly what this remaining piece of Yahoo is going to be worth after this Alibaba spinoff, and we are looking at a value that generally will be around $6 to $10 billion."

"So, I think that Yahoo does have a lot of upside here. I think it was a great move by Marissa Mayer to do this spinoff. It's going to be really good for the shareholders and I would expect Yahoo to trend higher from here as the sharp pencils come out and try to figure out exactly what this thing is worth."