Put Buyers Bank On a JD.Com Inc (ADR) (JD) Pullback

JD.Com Inc (ADR) traders wagered on downside yesterday, despite the stock's surge


Published on Dec 10, 2014 at 8:45 AM
Updated on Apr 20, 2015 at 5:32 PM

Despite an absence of drivers, Wall Street newcomer JD.Com Inc (ADR) (NASDAQ:JD) jumped more than 9% yesterday to close at $25.42. Option traders responded with gusto, as 20,000 contracts were exchanged -- compared to an expected daily volume of 16,000. On top of that, JD's 30-day at-the-money implied volatility popped 2.9% to 51.3%, signaling elevated demand for short-term strikes.

Digging deeper, the equity's most popular option on Tuesday was the December 23 put, where 2,363 contracts swapped hands. Four-fifths crossed on the ask side, and open interest tacked on 1,629 contracts overnight, hinting at the purchase of fresh bearish bets. In short, these buyers are gambling on a retreat below $23 in JD shares, by the close on Friday, Dec. 19, when front-month contracts expire.

While the equity has spent some time south of that strike recently, it has ended a week south of $23 just once in its short history as a publicly traded entity -- that is, in late May, just after going public. As such, delta on the JD.Com Inc (ADR) (NASDAQ:JD) put is negative 0.15, which means the market is giving the option a less than 1-in-6 probability of being in the money at expiration.

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