JD.com Stock Could Be In for a Volatile Monday

JD options traders have been buying to open the November and December 40 calls

Nov 10, 2017 at 2:24 PM
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Shares of JD.com, Inc. (NASDAQ:JD) could be in for a volatile week of trading in the wake of sector peer Alibaba's (BABA) Singles Day extravaganza. The world's largest shopping day of the year is currently underway, with Alibaba saying sales hit $5 billion in the first 15 minutes of this year's event. Plus, the Chinese e-commerce issue is scheduled to report third-quarter earnings before the market opens on Monday. Given JD stock's impressive history of post-earnings price action, options traders have been loading up on long calls.

In fact, the shares have closed higher in the session subsequent to the company's earnings report in six of the past eight quarters -- averaging a gain of 5.88%. This time around, the options market is pricing in a one-day post-earnings swing of 9.5%, regardless of direction, based on the stock's at-the-money (ATM) implied volatility (IV) data.

Options traders appear to be betting on this price action to once again resolve to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 155,400 calls in the last 20 sessions, compared to 48,290 puts.

Echoing this call-skewed stance is JD's Schaeffer's put/call open interest ratio (SOIR) of 0.55, which ranks lower than 73% of all comparable readings taken in the past year. In other words, traders are more call-heavy than usual among options set to expire in three months or less.

While the bulk of this activity is dedicated to the January 2018 options series, the November and December 40 calls are home to JD's top two open interest positions. Data from the major options exchanges confirms significant but-to-open activity at each strike, suggesting options traders are betting on a breakout above the round $40 mark over the next five weeks.

Given the stock's longer-term gains, this could be the result of vanilla options bulls. However, considering short interest shot 26.8% higher in the most recent reporting period to 37.11 million shares -- the most since early February -- these bearish bettors may be initiating options hedges to guard against any additional upside risk.

Regardless of the reason, it's getting pricey to buy premium on JD stock ahead of earnings. While its 30-day ATM IV of 43.1% ranks in the 96th annual percentile, its Schaeffer's Volatility Index (SVI) of 63% sits above 83% of all similar readings taken in the last 12 months. These two volatility indicators suggest elevated expectations are being priced into short-term options.

Looking at the charts, JD is up 1.2% today to trade at $40.26 -- bringing its year-to-date gain to 58%. Since hitting a record high of $48.99 on Aug. 8, though, the shares have struggled under a trendline connecting a series of higher lows, with the round $40 level serving as a ceiling since late September. Nevertheless, a recent bounce from its 200-day moving average has historically had bullish implications for JD.com stock.


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