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Trading earnings near an all time high -
3 min read

Trading earnings near an all time high -

Trading earnings near an all time high -

Chinese E-commerce giant reports earnings (early) tomorrow morning. The stock (adr - JD) is near its all time highs on the heels of some recent upgrades and expectations are high. Options flow is net bullish.

The Set-Up

Here's the 1 month expected move chart from OptionsAI technology:

You can clearly see most of the move is priced for the earnings event itself.

Ways to Play

Buying a stock near its time highs (stock is 48.50, highs were ~$50.50) into an event is tricky as momentum is clearly there but that has to be weighed against expectations. The stock just made a move from $41 to $48 in a straight line over the past 2 weeks. Plus there's been a lot going on in China. JD is similar to other e-commerce companies in that they've been able to weather the shutdowns better than brick and mortar retailers and in a lot of ways have benefited. But at some point that needs to be weighed against what's going on with the consumer overall. For example, Alibaba (BABA) stock is still down ~15% from its January highs.

For those looking for a breakout in JD (or any stock at all time highs in this market), defined risk is crucial. Here's trades returned by OptionsAI technology for a bullish price target in line with the expected move for Jun 19th expiration, $54:

You can clearly see the difference in price between the 48 call and the 48/55 call spread, reducing cost significantly and allowing room for a move higher of ~11%. Its breakeven is ~$50.50, essentially JD's all time highs. That's a lot of room to be right for a breakout and probably justifies capping potential gains to make sure the breakeven is in line with the highs.

The credit 48/43 put spread is probably a bit risky with a stock near its highs and after the move higher the past few weeks, the main thing to consider there is its breakeven of ~$46.20 in the stock, that's a bit tight.

Now for bearish, either outright, or as a hedge. Here's a bearish target of ~41.50 for June 19th:

In this case the 7 wide put spread (49/42) is a lot of bang for the buck and is an interesting play outright. The short call spread isn't great risk reward as the 55 calls are a bit pumped but selling call spreads is an interesting way to add some yield (if you own it) on a stock that's just ran higher. It's also interesting to note that trade's breakeven of around 50.78 for those looking at it either against stock or outright. It's essentially drawing a line in the sand at the all time highs and betting JD doesn't make new ones.

See a part of OptionsAI technology with your own price target and demo trades in AAPL HERE

Actionable Insights from the Options Market

Earnings event expected moves
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