JD.com Option Traders Betting Big On Earnings Beat

JD.Com Inc JD shares are up 23.4% in the past three months, but at least one larger option trader is betting on more upside for the Chinese e-commerce stock this week.

The Trades

On Monday morning, Benzinga Pro subscribers received three option alerts related to unusually large JD trades.

• At 10:18 a.m., a trader bought 927 JD call options with a $35 strike price expiring on Friday near the ask price at 42 cents. The trade represented a $38,934 bullish bet.
• At 11:20 a.m., a trader bought 1,021 JD call options with a $36 strike price expiring on Friday near the ask price at 32 cents. The trade represented a $32,627 bullish bet.
• At 12:10 p.m., a trader bought 747 JD call options with a $36 strike price expiring on Friday near the ask price at 34 cents. The trade represented a $25,398 bullish bet.

Why It’s Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest sizes of Monday’s JD option trades by institutional standards, they are unlikely to be institutional hedging.

JD Earnings Setup

With JD earnings due out on Friday morning, the strike price of the calls purchased on Monday suggests more than 5.8% upside given the lowest break-even prices of the calls is $35.42.

JD traders may also be getting bullish on the stock due to strong reports from the company’s Singles Day sales event on Monday. JD reported $25.6 billion in Singles Day sales by Monday afternoon, but those numbers will not be reflected until fourth-quarter earnings in February.

Benzinga’s Take

As with many other growth stocks, upside for JD will continue to hinge on whether or not the company can grow its business at a high enough clip to justify its valuation. With JD stock up 53.8% overall year to date, market expectations are extremely high. Investors may also be cautious about going all-in on JD given the ongoing uncertainty surrounding the economic impact of the trade war in China.

The stock traded around $33.34 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Photo courtesy of JD.com.