JD.com Takes Out Technical Resistance Before Earnings

Options traders may be using calls to hedge

Managing Editor
May 7, 2018 at 11:30 AM
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JD.com Inc (NASDAQ:JD) reports first-quarter earnings before the open tomorrow, and will be in particular focus after Chinese rival Alibaba (BABA) reported an earnings victory on Friday. Ahead of tomorrow's event, the options market is bracing for a larger-than-normal move from the e-commerce name. 

Over the last eight quarters, JD.com stock has closed lower in the session after the company reports earnings three times -- including two of the last three. On average, the shares have swung 5.5% the next day, regardless of direction. This time around, the options market is pricing in a bigger one-day move of 8.5%.

At last check, JD was trading at $38.54, up 2.3% on the day, despite receiving a price-target cut from Benchmark to $48 from $52. The shares have been guided lower by their descending 20-day moving average since late February, culminating in an annual low of $34.88 on April 25, though they're set to close above this trendline for the first time since March 12 today.

Meanwhile, options traders have continued to prefer calls over puts, but the latter contracts have actually seen unusual interest in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security's 10-day put/call volume ratio of 0.44 ranking in the 84th annual percentile. Moreover, JD's Schaeffer's put/call open interest ratio (SOIR) of 0.92 is just 13 percentage points from a 12-month high, showing short-term traders are less call-skewed than normal.

Shifting gears to today, calls again have the advantage on an absolute basis, more than tripling puts. However, the most popular contract overall is the weekly 5/11 35-strike put, where nearly 3,700 options have crossed. It's not clear how options traders are positioning themselves here, especially since open interest sat at 4,122 coming into today -- suggesting it's possible traders are actually closing positions.


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