Unusual Options Activity: JD.Com (JD)

At-the-money put buying suggests drop

  • Special: Wall Street Buying Frenzy on Under $5 Stock
  • Over 6,050 contracts traded on the November 15th, 2019 $30.50 put option on JD.com (JD). That’s a 17-fold surge in volume against the prior open interest of 354 contracts.

    The option has 14 days left before expiration, and shares of JD are at $31.24, so they’d still need to drop for the option to close in-the-money. Adding in the $0.80 option premium, and traders are betting on a drop under $30.

    The Chinese e-commerce giant often has some swings up and down, and may have just started a short-term pullback based on the latest charts. If that’s the case, then the trade, while short-term, could possibly provide a trader with a 25-50 percent return in the next few weeks—not too bad for an options trade.

    Action to take: We like this short-term trade. At the very least, it’s a short-term bet on Chinese stocks giving up some of their gains as the much-promised macroeconomic event of a trade war resolution remains up in the air.

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  • Longer-term, shares have run up a bit in the past year despite their volatility, with a 35 percent jump. With shares trading at a high valuation, especially considering the company barely eked out a profit last year and has an anemic 1.2 percent profit margin, we see no reason to make an investment either way here—just jump on the option trade and try to grab a quick profit on the short side.