Calls cash in as JD churns higher

JD.com has ridden a profitable wave with other Chinese stocks, handing big gains to bullish option traders.

On May 4, Investitute’s market scanners detected the purchase of 10,000 September $31 calls in one print for $5.45 with shares at $35.18. This was clearly a new position, volume was far above the strike’s open interest of 2,765 contracts.

Those calls were listed at $14.58 today, nearly tripling in value. The stock rose 28.5 percent in the same period, an impressive gain but one that was still far less than the move in the options on a relative basis.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

JD was up 0.13 percent to close at $45.22 today, a day after dropping with the rest of the stock market. The Beijing-based e-commerce company has rallied along with larger rival Alibaba and other Chinese Internet names since the country’s National Bureau of Statistics released positive numbers on the industry early last week.