Bull v. Bear: BABA Builds Up AI Model, Creates New Question Marks

to Fast Market here on Schwab Network. Shares of Alibaba are moving higher after the company unveiled a preview of its newest AI model, dubbed Quinn 3.8 Max. The tech giant says it is one of the world's most powerful models and trails only Anthropic's fable five Alibaba plans to make the model open weight, meaning it allows developers to download, customize and build on it. The announcement comes just days after Chinese startup moonshot AI introduced its own powerful model, underscoring how quickly China's artificial intelligence industry is aiming to catch up to U.S. competitors. For investors, it's another sign that the global AI race is heating up well beyond Silicon Valley. All right, time now for the tug of war on Alibaba. For that, let's welcome back in our co-host Tom White and Kevin Hanks. It is bull versus bear time. So before we get to your example trades, we got to get each of your thoughts on Baba. Kevin, I'll start with you. What's your take on Alibaba? Quinn 3.8 Max they call it. It's their large language model that they refer to. The company spokesman said one of the most powerful on the market. And so, you know, a Chinese company putting out a large language model. We don't know what that will do to the U.S. we don't know how profitable it will make Alibaba. So it's a little dicey there. Remember, we we've covered these stocks a lot over the last couple of years. How it's difficult for some U.S. investors to invest in Alibaba. But this news, they're certainly competing. There's also an EU fine of up ■k7550 million for breaching obligations on the Digital Services Act. No one cares about that today. They're all thinking about the good news with Alibaba's large language model. So watching this evolve, it's certainly a good day for Alibaba. Like I said, there's been a lot of scrutiny this stock lately. But the news that was negative for a while seems to have dissipated. Stock having a really good day today Diane. It is. It's better by more than 5.5%. Tom what's your take on Alibaba. Yeah I think you start taking into the fact that that moonshot AI just came out with a model late last week. They actually had to shut down people before the weekend that were trying to access it, because they say it's comparable to what we have in the U.S. now, this Quinn 3.8 Max is supposed to be right below what they've got out of anthropic as far as large language models on here. So that's a concern, I think, for a lot of these big company, big tech companies here in the US, because it's all going to be about pricing when it comes down to IT and energy use. Now remember if you look at China, they're building out energy infrastructure. They're using, you know, old fossil fuel plants. They're opening still opening coal plants across their country on a monthly basis. So maybe they have more access to what all the other hyperscalers here are trying to, to get to. Is that more energy, right? Because the need for it is so great. And they might have better infrastructure to get that access out there. And maybe they start cutting costs on what they charge the consumer and businesses for their models in the future. And that's going to be a concern, I think, for some of these hyperscalers as this AI race kind of, you know, comes to fruition here over the next couple of years, because I think it's going to be a big concern. Now, there's questions about how they get all this information, how they got the technology. That's always been a question. If you look at a chart like this one in Alibaba, it's choppy and it's probably going to remain choppy because I'm guessing the US administration is not going to allow maybe companies and others to use these models if they're not based here in the US. So there might be that regulatory issue coming down the pipeline also. And then there was another benefit late last week that, you know, Beijing and China basically came out and said that, hey, they can put, you know, into Apple, they can put AI, Chinese based AI into some of the Apple products that are going to be for sale over there also. So that was kind of a coup for them also. But the stock's up 26.5% so far this month. But expect that Chop to continue just like this chart kind of reflective of all right. So let's get into the example trades. Kevin let's start out with yours. What's your approach today. Yeah this is you know like I said it's a dicey issue you know China's always going to be the low price to trade Alibaba. And you think this could be good news and continue good news. And they're a real competitive threat. What I did the first thing I gave myself some duration. I went out to August 7th. And then I looked at the expected move out to August 7th. It's about, you know, right, right, right around $11. So just slightly, right. Yeah, we'll call it $11. And I just kept it relatively basic with the vertical call spread. The one 2130 vertical call spread. So buying the August 7th. 120, selling the August 7th. 130 spending about $2.90 for this paper money trade trading higher than that now trading almost 360. Now as this stock has continued to rally throughout the day, can you adjust your strikes. Yes you can. But I think this is one that's in line with the expected move in line with where the stock's trading right now. Like I said trading a little higher than the 290 strike time. But this is one that just gives you some duration gives you a discounted price. You're buying the 120 call but you're selling the 130 that that lowers the net cost, lowers the break even time, but also caps the profits on this one. So vertical call spread in Alibaba. Tom. Yep. Directionally bullish on this call vertical. But let's break it down. August 7th weekly options here. That's 18 days to expiration that Kevin brought us buying the 120 strike call selling the 130 call bullish $10 wide call vertical paying roughly about 290 debit as Kevin mentioned, about 50 $0.60 higher than that right now. But the pay is going to be risky. So if you pay two $9,290 per spread, that can expand to $10 if it gets back above 130 into expiration over the next two and a half weeks. So keep that in mind. And I thought it was interesting of note on Kevin's trade in that August 7th weekly option series where he got this example, the plus or minus move in the stock for that option series about plus or minus ten, $11. So that 130 strike that you're selling in this is setting up with about that one standard deviation move that the option market's pricing in at this point. But if you pay 290 debit, you got to get that stock back above one 2290 to get into that profitability range. But this is one of those names where it gives you some flexibility because you're buying it directionally, right? Where I don't have to wait 18 days. If you get the move, maybe up to 126, 128, 130 over the next few days, if the market's open, you can maybe if it starts to expand in price, you can look to close all or a portion of your position ahead of expiration on these directional type of trades. On a percentage basis, that break even is not too far above the current share price, just above 121 that Alibaba is currently trading. So directionally bullish 18 days to expiration. There's the bullish side of this debate. I went a little bit directional also Kevin. But I wanted to offset some of the costs on this maybe measured downside exposure on mine. I went out to the July 31st month or weekly options here. Kev just 11 days to expiration. So shorter duration on this one. Buying an unbalanced or broken wing put butterfly. Now prices are probably going to be different on this also because the stock has moved higher since we looked at those. But buying one of the 119 strike puts selling two of the 113 puts. That's where you want it to go. And then buying one of the 111 strike put so unbalanced put butterfly. You're paying roughly about a buck 90 debit. It's trading about a buck and a half now. So it's a little bit less expensive. But that debit you pay on this strategy is also your risk 190 bucks per spread if you pay 190, 150, if you pay $1.50 for it. Now your break even on this one goes down to 117 roughly about 117 on this. That's where you need it to go below. But Kevin, on this one you lose a little bit of profitability if it goes below the 111 strike. But you're shooting for the 113 strike about what the option market's pricing in for a one standard deviation move. But you know you've only got 11 days in this position. Butterflies max out at the short strike in this case 113 strike. You're long a $6 put vertical short a $2 put vertical. So you're looking for something around 190 or 1 and a half. Wherever it's trading. That could be, you know, a four times the profit if you get it for $1.50. If you think Alibaba might break to the downside. So this is one of those if it continues to go through 113 and towards 111, you're still locked in on profits. It's not as high as the peak at 113. But you're still profitable. Tom. Like I ■said long a $6 put vertical short a $2 put vertical. Yeah. It's still more than a double in profitability on that. If it goes below the 111 strike on this. But offsetting some of the costs by doing as Kevin did the call vertical, that would cost more than a butterfly. This put a butterfly. On the downside, you offset some of the costs by. Basically you're buying a $6 wide bearish. Put vertical. Offsetting some of the costs by selling a $2 wide. Put vertical with that same common strike. Short two options at the 113 level where you have max