Brace yourself: This one is high-risk, high-reward.

This week we’re looking at a 2-week to expiration earnings trade in Pinduoduo. This is a textbook bullish call spread against almost no open interest. That means whoever bought these is opening up a brand new position, expecting PDD shares to move meaningfully into earnings. 

That means a lot considering Pinduoduo is down heavy today. This buyer bought these spreads with Pinduoduo down -3.8%, at $63.90. It’s even lower since then, currently trading at $62.71 as of $10:53AM EST. That said, we saw a similar buyer on May 9th with PDD at $60.40 buying up a very similar position — so it’s highly possible that this is a double-down dip buy.

That’s right — for those of you who felt uncomfortable buying our KRE calls (which were bought at $36, rallied higher immediately after we sent it out, and became profitable the very next day) — get ready to white-knuckle it once again. Let’s be clear: This is a fast-moving, high-beta stock in a sensitive sector, going into earnings. Nothing about this is safe.

Let us show you how to find Unusual Options Activity

Everything you’ve ever wanted to know about Unusual Options Activity—in one convenient insider’s guide.

A few quick facts:

  • This is a call spread — call spreads are a little more conservative than just buying a call — but you can do that too, if you like. This trader is probably trying to negate some of the potential IV crush and theta decay by using a spread instead of a straight call.
  • To enter this particular call spread, you would find the June 2nd, 2023 call options, opting to buy the $69-strike calls, and simultaneously sell the $74-strike calls against it.
  • The maximum value of this spread is achieved if, on June 2nd, PDD is trading at least as high as $74 per share — but just like with call options, this spread would likely gain value if PDD made a meaningful move higher before that.
  • The max value of this spread is $5.00 ($500) — the current value of these spreads is exactly $0.95 ($95) as of 10:53AM, EST — About $0.22 lower than this buyer paid.
  • That means this spread offers over 400% returns if PDD rallies. 
  • With earnings on May 26th, promising consumer data could lead this explosive name higher (particularly in China, where the reopening is well-underway and the “pent-up demand” narrative is still intact). 
  • In general, Pinduoduo has a habit of making very large moves in both directions — another reason why mitigating some risk with a call spread isn’t such a bad idea.

Level Up Your Trading

Get a custom-designed trading program tailored to your individual needs, skill level, and schedule.

As always, our two favorite risk management tactics are AJ Monte’s 1% rule, and Jon Najarian’s Half-or-Double rule of thumb. Those are:

AJ Monte’s 1% Rule: Try to use no more than 1% of your portfolio to take on option positions. If this position is already more than 1% of your portfolio, and you would still like to enter, consider just grabbing one.

Jon Najarian’s Risk Rule (Half or Double): If an option position gets cut in half, cut and run. If an option position doubles, take your profit and either roll to a cheaper position, or move onto the next trade with your newfound gains. For this position, that would mean you might consider adjusting your trade when it reaches roughly $2.00 per contract. That could mean you sell outright, or even roll the long-leg (the $69-strike call) up to, say, the $70 or $71-strike.

Want more trades like this every week? Try UOA Essential today.

Monthly
Annually

UOA Essential

Monthly Membership

$

199

/month

Cancel Anytime

See Terms of Use for details.

UOA Pro

Annual Membership

$

3,495

/year

Billed Annually at $3,495

Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.

UOA Essential

Monthly Membership
Call for Pricing
(888) 809-8058

See Terms of Use for details.

UOA Pro

Annual Membership
Call for Pricing
(888) 809-8058

Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.

UOA Essential

Annual Membership

$

995

/year

Billed Annually at $995

Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.

UOA Pro

Annual Membership

$

3,495

/year

Billed Annually at $3,495

Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.

UOA Essential

Annual Membership
Call for Pricing
(888) 809-8058

Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.

UOA Pro

Annual Membership
Call for Pricing
(888) 809-8058

Full 30-day money back guarantee on annual subscriptions. See Terms of Use for details.