Alibaba Group Holdings (BABA) ADRs have dropped from their May peak of $134 due to renewed tariff pressure. Analysts have revised EPS forecasts and price targets downward. BABA is currently at $108.45 per share, with a potential attractive play being to short deep OTM puts, like the $100 strike price.

While BABA’s EPS projections for the year ending March 31, 2025 have decreased to $9.20 from $10.24, the stock’s P/E ratio stands at 11.8x, below its historical average. Analysts forecast a NTM EPS of $9.96, suggesting a potential target price of $117.73, offering 8.6% upside.

Various sources indicate an average price target well above BABA’s current share price, with the lowest analyst survey projecting a 37.6% increase. Considering this, the stock appears undervalued by over 20%. Selling short OTM put options, like the $100 strike expiring in August, offers an immediate yield of 1.9% and potential downside protection.

If BABA remains above $100, investors can earn a clean 1.9% yield without purchasing shares. Even if assigned, the breakeven price is $98.09, 9.5% below the current trading price. This strategy could provide a monthly yield and an annualized return of 17.28%, with a low delta ratio indicating a low probability of BABA falling to $100.

Overall, BABA stock appears inexpensive, with the option to short 39 DTE puts at the $100 strike price offering a 1.9% yield. This strategy provides attractive downside protection and the potential for high upside, making it a compelling opportunity for investors.

Read more at Yahoo Finance: Alibaba Stock is Well Off Its Highs