Unusual Options Activity: JD.com (JD)

Traders bet on further rally in shares.

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  • The June 2020 $44 calls on JD.com (JD) saw a 20-fold rise in volume, going from 100 open trades to over 2,000 contracts change hands.

    Shares currently trade just over $36, so a move to $44 in the next 172 days before expiration implies a 22 percent upside for shares.

    The option buyer paid about $1.08, or $108 per contract. That’s a low price that could lead to triple-digit returns if shares rally sufficiently.

    JD.com is an e-commerce company operating in China, with fulfillment centers in 7 cities and 550 warehouses in 81 cities throughout the country. Shares have moved 67 percent higher in the past year and are near 52-week highs.

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  • Action to take: Although the company is barely profitable, its growing revenue and the growing middle class in China makes this a potential big winner with plenty of upside left.

    Investors can buy shares up to $37, which translated to about 25 times forward earnings. As a fast-growing company in China, there are no dividends at this time.

    Speculators should get in on the June $44 trade, given the amount of time until expiration and upside potential, it’s a solid trade relative to the risk and reward. The company does report earnings for the 4th quarter in late February. If earnings are better than expected, the earnings date should give a chance for traders to take profits well before expiration and lock in a gain, even if shares fail to get as high as $44.

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