NEW DIRECTIONAL CALL PLAYS

Alibaba Group - BABA - close: 110.65 change: +1.40

Stop Loss: 107.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 30 million
Entry on December -- at $---.--
Listed on December 20, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The biggest IPO in history happened this year. The company was Chinese e-commerce giant Alibaba. They priced at $68 per share, raising $25 billion in capital, and giving the company a market cap of almost $170 billion. The stock opened its first day at $92.70. Six weeks later it was testing $120 per share.

BABA is considered part of the services sector. They're based in Hangzhou, China but they operate globally. The company runs several businesses including: Taobao Marketplace, an online shopping website; Tmall, a third-party platform for companies to retail online; Juhuasuan, a group-buying service; Alibaba.com is a business-to-business marketplace; 1688.com is a wholesale market; AliExpress is a consumer market. BABA runs multiple advertising services. They also offer cloud-computing services (a rival to Amazon's web services). The company also has AliPay, a payments company, but BABA's CEO said they plan to spin that off. According to IDC, BABA is the biggest online and mobile commerce company on the planet by gross merchandise volume.

Many investors see BABA as a way to play the growing Chinese consumer. BABA outlines the opportunity on their website:

We believe our business benefits from the rising spending power of Chinese consumers. China's real consumption is still a low percentage of GDP compared to other countries, including the United States. We believe that growth in consumption will drive higher levels of online and mobile commerce.

China's online shopping population is relatively underpenetrated. China has the largest Internet population in the world, but less than half of the Chinese Internet users have ever shopped online.

BABA's first earnings report as a public company was November 4th. The company delivered a profit of $0.45 a share, which was in-line with analysts' estimates. Revenues soared +53.7% to $2.74 billion, which was above expectations. Their mobile revenues doubled and their mobile active users surged +139%. BABA's gross merchandise volume rose +49% to $90.5 billion.

The company did not provide any guidance for the fourth quarter but many believe it will be the best quarter in BABA's history. Single's Day occurs on November 11th every year. It is a manufactured sales holiday that rivals Black Friday and Cyber Monday in the U.S. Last year (2013) BABA raked in a record $5.7 billion in sales on Single's Day. This year they blew that away with $9.3 billion in sales in 24 hours on Single's Day. BABA said they took in 278 million orders.

The stock peaked a couple of days later (Nov. 13th) and then corrected from the $120 area down to technical support at its new 50-dma (near $101). That is a correction of about -15%. Since then BABA has been consolidating sideways above its 50-dma. Shares held up very well during the U.S. market's painful sell-off a few days ago (that began Dec. 8th).

Shares of BABA appear to have broken the four-week down trend and traders were buying the dips near $108.00 on Friday. A rise past $112.00 would generate a new buy signal on BABA's point & figure chart. I think BABA is headed toward resistance at $120, possibly higher.

Tonight we are suggesting a trigger to buy calls at $111.25. I'm listing the March calls but that's only because the February's are not available yet (they should be soon). BABA is scheduled to report earnings in early February and we'll likely exit prior to their announcement.

Stock Lock Up Expirations

If you're going to trade BABA you need to be aware of the key lock up expiration dates.

December 19th (Friday) was a small lock up expiration where 8.1 million shares were released and available to be sold. This didn't have much impact since there is already 1.0 billion shares in BABA's float. However, BABA does have two more lock up expiration dates in 2015 that could be significant.

On March 19, 2015 the company will see an additional 429 million shares come available to market. Then on September 21, 2015 there is a huge 1.58 billion share lock up expiration.

Trigger @ $111.25

- Suggested Positions -

Buy the MAR $120 CALL (BABA150320C120) current ask $4.90

Option Format: symbol-year-month-day-call-strike

Daily Chart:




NEW DIRECTIONAL PUT PLAYS

Citrix Systems, Inc. - CTXS - close: 63.13 change: -0.16

Stop Loss: 65.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.9 million
Entry on December -- at $---.--
Listed on December 20, 2014
Time Frame: Exit prior to January option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
We recently tried to trade CTXS as a put candidate. Unfortunately the market's massive rally in the last three sessions hit our stop loss. Yet CTXS still looks bearish. The oversold bounce has failed at resistance near its simple 200-dma and its descending 50-dma. Speaking of these moving averages the 50-dma is about to cross under the 200-dma, which is called a "death cross" by technicians.

We want to take another swing at CTXS. Tonight I'm suggesting a trigger to buy puts on CTXS if shares trade at $62.40 or lower. We'll start with a stop loss above Friday's high at $65.05.

Here's my previous play description on CTXS:

The company press release describes CTXS as "a leader in mobile workspaces, providing virtualization, mobility management, networking and cloud services to enable new ways to work better. Citrix solutions power business mobility through secure, personal workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. This year Citrix is celebrating 25 years of innovation, making IT simpler and people more productive. With annual revenue in 2013 of $2.9 billion, Citrix solutions are in use at more than 330,000 organizations and by over 100 million users globally."

It sounds like they are in the right industry. Cloud services, cloud networking, mobile apps and desktops. Those are all hot areas for business investment. Unfortunately the company might be encountering tough competition.

The company's Q2 earnings report back in July beat Wall Street's estimates on both the top and bottom line but management guided lower for Q3. When CTXS reported their Q3 results on October 22nd (after the close) their bottom line profit beat estimates by two cents. Yet their revenue number missed Wall Street's estimate. Once again management issued a bearish outlook. They guided earnings and revenues below Wall Street estimates. You can see how shares gapped down on October 23rd.

The stock bounced from these late October lows likely thanks to the market's super sharp rally. The stock market's big cap indices broke out to new highs but not so for CTXS. Shares failed at resistance and have been struggling for weeks.

Since their October report the stock has been downgraded and initiated with an underweight rating by two firms. The stock also got a big vote of no confidence when the latest 13F filings came out and it was revealed that some big fund managers have closed their positions in CTXS.

The stock's performance has created a bearish sell signal on the point & figure chart with a $49.00 target.

Trigger @ $62.40

- Suggested Positions -

Buy the Jan $60 PUT (CTXS150117P60) current ask $0.65

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart: