Options Traders Expect Big NetEase Move After Earnings

The company will report its fourth-quarter earnings after tomorrow's close

Lillian Currens
Feb 19, 2019 at 11:44 AM
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The shares of NetEase Inc (NASDAQ:NTES) are popping today after business magazine Caijing reported that Amazon's (AMZN) China unit expressed interest in the Chinese tech giant's e-commerce company, Kaola. The NetEase offshoot sells imported apparel and household goods and has been listed as a leader of online shopping in China. Separately, NetEase is set to report its fourth-quarter earnings after the market closes this Wednesday, Feb. 20. 

It's been a rough 52 weeks for NTES stock, though, with the shares down about 25% over this time frame. The equity has made several attempts to overtake resistance at the $255 level -- site of its lows prior to an Aug. 9 earnings-related bear gap -- but this technical ceiling has held firm. The equity's pullbacks from this resistance level have been contained in recent months by support at its 100-day moving average. At last check, NTES stock is up 2.8% at $234.

Options traders are piling on NetEase stock today ahead of tomorrow night's earnings report. Intraday puts and calls are both currently trading at three times the normal volume, with roughly 2,700 calls and 1,600 puts crossing the tape so far. Most of the activity is transpiring at the weekly 2/22 250-strike call, with new positions being opened at this out-of-the-money strike in today's trading. 

Over the last eight quarters, NTES has averaged a single-day post-earnings price swing of 7.8%, regardless of direction (per Trade-Alert data). This time around, the options market is pricing in a bigger swing of 12.5%. The shares have managed only one post-earnings move of this magnitude over the past two years, but it did occur following the company's fourth-quarter report. Back in 2017, to be specific, NTES popped 14.1% the session immediately following its Feb. 16 earnings release.


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