Bullish Options Bettor Ups the Ante On JD.Com Inc (JD)

JD.com Inc (ADR) (JD) call options are flying off the shelves as the e-tail stock soars

Alex Eppstein
Nov 29, 2016 at 2:35 PM
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Amid a sector-wide rally in Chinese internet stocks, JD.Com Inc (ADR) (NASDAQ:JD) is 4.9% higher at $27.09. Giving the e-tail shares an added boost is Macquarie's announcement that it upped its stake in the company by almost 7% in the second quarter to 718,600 shares. Meanwhile, stock and options volume are in the 97th and 99th percentiles of their respective annual ranges.

Digging deeper, JD options are being exchanged at four times the usual intraday rate, with calls outstripping puts 57,000 contracts to 27,000. Trade-Alert suggests one trader may have rolled her bullish position up and out, selling to close a block of 4,433 January 2017 27-strike calls, while buying to open a lot of 4,324 March 29 calls. In other words, the speculator now expects JD to topple $29 within the next four months, after trading below that level since early October.

In recent months, traders have been buying to open calls over puts at a rapid rate, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, JD sports a top-heavy 50-day call/put volume ratio of 2.85.

No matter whether traders are buying calls or puts, the fact is short-term options can be had on the relative cheap. JD's Schaeffer's Volatility Index (SVI) of 28% sits only 4 percentage points from a 12-month low, suggesting volatility expectations are muted on front-month options, from a historical perspective. Underscoring this, the stock's 30-day at-the-money implied volatility of 29.7% registers below 98% of all readings from the prior year.

Turning to the technicals, JD.Com Inc's (ADR) (NASDAQ:JD) intraday performance isn't representative of its longer-term trend. Even after accounting for today's breakout, the shares remain saddled with a 16% loss in 2016. Perhaps this is why delta on the out-of-the-money March 29 call is only 0.40, giving the option a 2-in-5 chance of expiring in the money.

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