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Post-Earnings Put Selling Heats Up On JD.Com Inc (ADR) (JD)

Short-term traders expect JD.Com Inc (ADR) to remain above $25

by 8/15/2014 10:49 AM
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JD.Com Inc (ADR) (NASDAQ:JD) has been moving fast on the charts this morning, following a poorly received second-quarter earnings report. At its intraday low, the stock was down 6.4%; however, the shares have erased these losses, currently up 2% at $30.02. Not surprisingly, this volatility has attracted the attention of options traders, with volume running at nine times the typical intraday rate.

Far and away the most active strike is JD's out-of-the-money September 25 put. Nearly 7,500 contracts have been exchanged here, and with 92% crossing at the bid price and volume outstripping open interest, it's safe to assume the puts are being sold to open. Therefore, the speculators' goal is for the equity to remain above $25 through September options expiration, so that the contracts will expire worthless and the sellers can retain the initial premium collected. It's worth noting, however, that JD's 30-day at-the-money implied volatility has plummeted 20.9% to a record low of 45%. This means now's not a great time to be selling premium on short-term options, as the market is pricing in lower volatility expectations than at any other point since the stock began trading in May.

What the put writers don't want to happen is for JD.Com Inc (ADR) (NASDAQ:JD) to dip below the quarter-century mark. If this happens, the speculators could be assigned, and forced to buy the stock for $25 per share, no matter how far it's fallen.


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