Friday offered a bit of something for bears and bulls off and on the price chart of JD.com, Inc. (ADR) (NASDAQ:JD). But after weighing the evidence, if you find yourself in the former and more optimistic camp, a bull call spread looks like the right kind of purchase on JD.Com stock. Let me explain.
Source: Daniel Cukier via Flickr
JD.com, China’s ‘other’, but increasingly less secret Amazon.com, Inc (NASDAQ:AMZN) released its latest corporate confessional this past Thursday night — and by some measures the results were less than terrific.
Off the price chart, JD.com announced an earnings miss of four cents on profits of 5 cents a share and a penny worse than last year’s quarterly take-down of 6 cents, urging bears and some shareholders into action. Marketing costs also skyrocketed by 35%. As well, shares of JD did finish off 5.2% and below the well-watched 50-day simple moving average.
But the results weren’t completely bad. In fact, by other criteria conditions, JD.com stock still look well-positioned for success.
For one, the online merchant did report sales of $16.93 billion for its fourth quarter which amounts to a significant jump of nearly 34% over 2017. JD.com’s revenues also topped the Street’s forecast of $16.6 billion. And active customer accounts also grew by a handsome 29%.
Throw in JD.com stock’s aggressive spending motif operandi into new markets and further its business reach and some investors like InvestorPlace’s Dana Blankenhorn see even more potential and similarities to Amazon’s own playbook. Lastly and on the price chart, while some investors fret over one moving average, another and more significant bullish trend-line is looking plenty supportive.
JD.com Stock Daily Price Chart
I recently wrote about life being messy and why it’s equally important not to ignore less-than-perfect price patterns from stock charts which embody the spirit of a classic technical set-up. Following Friday’s gap lower in JD.com stock, I believe shares represent just this sort of bullish opportunity.
Since carving out a textbook corrective cup-shaped base, JD shares have become a bit more volatile and erratic. There was a nice heavy volume breakout from a handle consolidation, but that was the last instance of JD being gentle. Subsequent price action has been a good deal more ornery with shares giving up all those gains and failing the bullish pattern entirely.
The good news technically is that while one base breakout failed, JD.com stock has gone on to establish a successful double-bottom that’s found support off the key longer-term 200-day simple moving average. With shares finishing strongly off Friday’s early technical test to close in a bullish hammer pattern; I’m optimistic JD shares are set to rally and eventually move to new all-time-highs.
JD Stock Bull Call Spread
One favored spread combination is a slightly out-of-the-money bull call spread. Verticals are excellent strategies for directionally-motivated traders as they offer the benefits of reducing and limiting dollar and Greek risks. As for this particular type of vertical, with a technical low in place I’d prefer to see hold, there’s little reason to increase downside risk using a strategy such as a put credit spread.
Reviewing JD.com stock’s options market following Friday’s session, the April $46/$49 bull call spread looks attractive. With shares at $43.85 the vertical is priced for 81 cents or less than 2% of the risk associated with holding JD shares.
If the stock rallies and finishes above $49 at expiration, the vertical can realize its max profit of $2.19 as the spread expands to $3 and the distance between the two strikes. That represents a return of 270%! At the same time, with verticals being very flexible positions and JD.com offering strong liquidity and dollar strike increments, there are many other strong “options” to potentially consider prior to maturity.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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