JD Analysis

Update 5/16/2015: My JD position expired out of the money for maximum profit. Shares rose by 1.5% over nine days, or a +62% annual rate. My options positon produced a 100.0% yield on debit, for a +4,056% annual rate.

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The e-commerce company JD.Com Inc. (JD), headquartered in Beijing, China, publishes earnings before the opening bell on Friday.

I shall use the regular monthly MAY series of options, which trades for the last time eight days hence, on May 15

The goal of my trades is to construct direction-neutral positions with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

[JD in Wikipedia]

JD

Ranges

Click on chart to enlarge.

JD at 10:38 a.m. New York time, 30 days hourly bars

Implied volatility stands at 52.4%, which is 3.3 times the VIX, a measure of volatility of the S&P 500 index. A nearer term analysis concludes that JD’s volatility stands at the peak of its most recent rise; a longer-term analysis, in the 67th percentile.

JD reached an all-time high of $36.75 in April. The price has been in a strong uptrend since December 2014, when it hit a correction low of $21.78.

That low is too distant to serve as a reasonable support level. I'll use a far less significant reversal as a poor substitute, but essentially, the chart has no support that I need pay attention to in constructing a trade.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	35.26	37.80	36.75
Lower	30.18	27.64	29.01
Gain/loss	7.8%	15.5%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

Iron condor short the $35 calls and long the $36 calls,
short the $30 puts and long the $29 puts
sold for a credit and expiring May 16
Probability of expiring out-of-the-money

MAY	Strike	OTM
Upper	35	73.9%
Lower	30	77.9%

The risk/reward ratio stands at 1.9:1. The premium is $0.36 ($0.23 for the alls and $0.13 for the puts).

Decision for My Account

I've opened a position in JD as described above.

-- Tim Bovee, Portland, Oregon, May 7, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



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Based on a work at www.timbovee.com.