Wednesday, August 5, 2015

JD Analysis

Update 8/13/2015: Like many Chinese companies trading on the U.S. markets, JD was hammered by the Chinese government's decision to devalue the currency against the U.S. dollar. I've exited my position to avoid further loss. JD's price at the time I got out was near the two standard deviation boundary.

Shares declined by 18.1% over seven days, or a -944% annual rate. The options produced a 70.8% loss on debit, for a -3,689% annual rate.

Update 8/6/2015: I've opened a position in JD as described below but with the higher premium of 
$0.60, which is 20% of the width of the position’s wings.The stock at the time of analysis was priced at $33.09.

The risk/reward ratio is 4:1.

The price difference from the time of analysis gives lower odds of expiring out of the money to the downside, but the distribution of open interest made it difficult to change the lower short strike price. I concluded that it was better to keep the liquidity even with the odds change.

The online electronics retailer Inc. (JD), headquartered in Beijing, publishes earnings on Friday before the opening bell.

[JD in Wikipedia]


I shall use the AUG series of options, which trades for the last time 15 days hence, on Aug. 21.


Click on chart to enlarge.
JD after the July 5 closing bell, 30 days hourly bars
Implied volatility stands at 51.2%, which is 4.1 times the VIX, a measure of volatility of the S&P 500 index. JD’s volatility stands in the 77th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

Iron condor, short the $38 calls and long the $41 calls,
short the $30 puts and long the $27 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money


The premium is $0.55, which is 18% of the width of the position’s wings.The stock at the time of analysis was priced at $34.32.

The risk/reward ratio is 4.5:1.

The zone of profit in the proposed trade covers a $4 move either way. The biggest immediate move after each of the past four earnings announcements was $2.01, and the average was $0.93.

Decision for My Account

I've posted prior to the opening bell because I'm trading from East Asia, where the U.S. markets re open in the middle of the night. I find it useful to do the analysis when I'm more than half awake.

I intend to attempt to open a position in JD. I shall update this analysis with the outcome of that attempt.

-- Tim Bovee, Fukuoka, Japan, Aug. 6, 2015


My volatility trading rules can be read here.


Two social media feeds provide notification whenever something new is posted.

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.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at

No comments:

Post a Comment