JD Analysis

JD.com Inc. (JD)

Update 11/13/2017: JD reported earnings of $0.1192 per share, beating the Street estimate of $0.10. The share price rose by more than $4 before the opening bell but dropped back by the start of general trading.

Zacks had forecast no earnings surprise in the context of a neutral score (3) and a 1.40 beta.

JD shares closed $1.38 higher the first trading day after earnings were published compared to the final pre-earnings close. That puts the move within the expected 85% chance move of $2.82 and all three post-earns moves metrics of the past year: the average of $1.85, the maximum of $2.77 and the central tendency of $2.18.

During the lifespan of my position, shares rose by 1.4% over three days (including the weekend), or a +174% annual rate. The options position produced a +33.0% return for a +4,019% annual rate.

JD publishes earnings on Monday before the opening bell.

I shall use options that trade for the last time 14 days hence, on Nov. 24.

Implied volatility stands at 45%, which is 4.1 times the VIX, a measure of the volatility of the S&P 500 index.

JD’s IV stands in the 56th percentile of its annual range and the 87th percentile of its most recent broad movement. 

The price used for analysis was $40.11.

Premium: $2.94 Expire OTM
JD-iron fly Strike Odds Delta
Calls 46.50 92.0% 10
Break-even 43.44
Short 40.50 95.5% 49
Short 40.50 44.5% 51
Break-even 37.44
Long 34.50 91.8% 7

The premium is 49% of the width of the position’s wings.

The risk/reward ratio is 1:1.

The zone of profit in the proposed trade covers a $3 move either way. The biggest immediate move after each of the past four earnings announcements was $2.77, and the average was $1.85. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.18.

The expected move covering 85% of occurrences is 2.82, within? /the profit zone.

The bid/ask spread is 8.7%.

Decision for My Account

I have entered a position on JD as described above. The stock at the time of entry was priced at $40.17.

By Tim Bovee, Portland, Oregon, November 10, 2017


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.

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