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.

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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.

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