Option Strategy | Alibaba Hits Four-Year High, Using Covered Call Strategies to Protect Gains
Alibaba rose over 8% to $176.44 on Wednesday, its highest level since August 2021. The rally was fueled by solid business growth, strategic advances, and improving market confidence. For traders already holding Alibaba shares and are relatively neutral to short-term price movements, a covered call can help protect the position while generating income.
Alibaba to Open New Data Centres; Unveils Most Powerful AI Model
Alibaba said on Wednesday it plans to open its first data centres in Brazil, France and Netherlands as it accelerates its global strategy for artificial intelligence. The expansion comes as Alibaba positions AI, which includes cloud, as a core business priority alongside its traditional e-commerce operations.
Alibaba also unveiled its largest ever artificial intelligence language model, the Qwen3-Max. The model contains more than 1 trillion parameters, or variables that determine how an AI system processes information, and shows particular strength in code generation and autonomous agent capabilities, Zhou Jingren, chief technology officer at Alibaba Cloud said.
Alibaba’s Cloud Unit Still a Small Revenue Contributor
In 1Q 2026, Alibaba’s total revenues were RMB 247.6 billion, of which 57% came from the China E-commerce Group and only 13% from Cloud Intelligence. Even though the cloud segment grew 26% year-over-year compared to the 10% growth generated by China E-commerce, this additional growth is still too marginal to have a significant impact on total revenues. Additionally, the profitability of Cloud Intelligence, measured by EBITA, is still less than 8% of total EBITA generated.
Alibaba trades at an 20.36 x price-to earnings (P/E) multiple compared to its five-year average of 13.1x. Similarly, the current Enterprise Value to EBITDA (EV/EBITDA) multiple is 14.3x, compared to its five-year average of 9.4x times.
BABA’s OI Shows Bullish Bets
Open interest for BABA expiring in a month (before Oct 31, 2025 expiration) showed moderately bullish sentiment as Call open interest totaled at 413,025, while Puts stood at 276,581. Put-Call open interest ratio reached 0.67.
Source: Option Charts
Option Strategy: Sell Covered Calls
The expected move for BABA options expiring on Oct 03, 2025 (8 days) (w) is ±$8.41 (4.79%), with a price range of $167.12 - $183.94.
Source: Option Charts
For traders already holding Alibaba shares and are relatively neutral to short-term price movements, a covered call can help protect the position while generating income.
The approach involves selling call options equal to the number of shares owned. For example, with Alibaba trading around $175, an investor holding the stock could sell call options with a $192.50 strike expiring Oct 3 and collect the option premium.
As long as the stock stays below $192.50 before Oct 3, the investor earns premium income in addition to stock gains. If Alibaba stock declines, the premium helps offset part of the loss.
Example: Sell $192.50 stike call options expiring October 3, 2025.
Source: Tiger Trade App
Max Profit / Net Credit: $84 (est.)
Breakeven(Expirt): $193.34
Estimated Margin: $2,767.75 (est.)
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