Name That Trade – $JD Power?

by Dan May 7, 2015 1:55 pm • Commentary

A couple weeks ago I took a look at the other Chinese eCommerce behemoth that you had probably never heard of, (JD), see below. The primary focus of the post was the buildup in call open interest in the last couple months, which is currently at an all time high, and 2.3x that of put open interest.

Event: JD reports their Q1 results tomorrow before the open, the options market is implying about a $2.25 one day move, or about 7% in either direction, which is rich to the 3.75% average one day moves over the last 3 quarterly reports since the company has been public, all of which have been lower.

Sentiment: Wall Street analyst are fairly positive on the stock with 20 buy ratings, 7 holds and 1 sell, with an avg 12 month price target up at $35.80. Short interest is below 2% of the float.

Price Action / Technicals: The stock is up 40% ytd, and up 70% from its May 2014 ipo. $30 was the recent breakout level, and would appear to be the next level of near term support:

[caption id="attachment_53440" align="aligncenter" width="600"]JD 1yr chart from Bloomberg JD 1yr chart from Bloomberg[/caption]

Volatility Snapshot: 30 day at the money implied vol (blue line) has ticked up very near the 2015 highs while 30 day at the money realized vol (how much the underlying has been moving – white line) has just bounced off of all time lows:

[caption id="attachment_53441" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

My View: Regular readers know that we don’t generally place a ton of faith in the merits of unusual options activity, but when you see the build up in outright call activity off of a very low base of open interest it becomes clear that it is directional. One could also make the argument that the trade is a tad crowded, with the potential for disappointing results to cause an out-sized move.

This is not a name we know well, but the build up in call open interest put it on our radar, we will see what the results bring and take a closer look.  But here are a couple trade ideas for those who have a directional inclination:


Hypothetical Trades:

Bullish – Buy the May 8th weekly 33 call for 1.05

Breakeven on tomorrow’s expiration: Losses up to 1.05 below 34.05, gains unlimited above 34.05

Rationale: This is a binary event but there isn’t any overhead resistance if this stock does a massive breakout. Therefore we like the idea of risking what you are willing to lose with a simple short term call if you are bullish. This trade offers unlimited upside but could be instantly worthless if the stock is flat or down tomorrow.


Bearish – Buy the June 30/25 put spread for .90

– Buy 1 June 30 put for 1.10

– Sell 1 June 25 put at .20

Breakeven on June Expiration: Losses of up to .90 above 29.10, gains of up to 4.10 below 29.10. Max gain of 4.10 at or below 25.

Rationale: This trade could also be used as a hedge against long shares. As an outright bearish bet it offers more than 4 -1 payout if the stock retraces much of its recent gains before June expiration.






Original Post April 21st, 2015: MorningWord 4/21/15: Bull in a China Shop $JD

Until Alibaba’s (BABA) ipo last year, Baidu (BIDU) was the bellwether U.S. listed Chinese on-the-line stock. For matters of simplicity, U.S. investors think of BIDU as the Chinese Google, and BABA as the Chinese (Amazon, Ebay & PayPal). The BABA story is pretty well known at this point, and despite the amazingly bullish sentiment leading up to its Sept 2014 ipo, and subsequent 75% gains before topping out in November, the stock has been left for dead in 2015 as investors grapple with what seems like and endless supply of shares (430 million or so came off of lock up in March and another 1.6 million due in Sept) and what has been an apparent deceleration in growth. The stock is down 31% from its all time highs, and down 21% on the year, hovering above technical support at $80:

BABA 1yr chart from Bloomberg
BABA 1yr chart from Bloomberg

BABA will report their fiscal Q4 results on May 7th, and the stock could see another flush (stock declined 9% on Jan 29th after posting disappointing Q3 results) lower on a miss fueled by the additional shares that came off of lock up but have not been sold. I suspect at some point between now and year end BABA round-trips its entire move from its IPO.

While BABA stole the show in 2014, there was another Chinese e-commerce company to list its shares in the U.S. to much less fanfare in May. (JD) sold 108 million shares at $19. The company sold an additional 26 million shares in a secondary offering at $23.80 in December. JD is probably the only $45 billion market cap company listed in the U.S. that you have never heard of.

The stock has caught my eye of late as it recently broke out to a new all time high a couple weeks ago, which was preceded by a steady build up in call open interest.

From Bloomberg
YTD call Open Interest from Bloomberg

Eight of the top 10 strikes of open interest are calls, with 53,000 of the Jan16 35 calls and 28,000 of the May 35 calls the two largest.

JD had $18.6 billion in sales last year, and are expected to grow sales by 50% in 2015 to $28 billion. While profits have been minimal, AMZN has proven here in the U.S. that revenue growth and market share in e-commerce have been the key to investors hearts. Through their ipo and secondary, the company now has 10% of their $45 billion market cap in cash, and very little debt.

The story is interesting, and it seems from the build up in call volume of late that JD has benefited from the poor sentiment for BABA in 2015. That said, it is one of the few Chinese U.S. listed net stocks trading at all time highs, up 42%. So it seems that the story could be a tad crowded. The company will not report until early June, but with the stock consolidating recent gains below the highs its hard to take to convicted a view without an identifiable catalyst.

JD 1yr chart from Bloomberg
JD 1yr chart from Bloomberg

The stock, likely through options, is on our radar.