If you’ve been with us for a while, you know we prefer to buy options on stocks that get compressed. However, there are exceptions. JD.com, Inc.(JD) is one of those exceptions. JD is a Chinese tech company that has been providing supply chain and logistics services since 2006. 

Although our company has been in business for more than 31 years, and ODDS Online has been around since 1998, this newsletter began in March of 2023. It just so happens that our very first trade idea in this newsletter was a straddle in JD. The probability cone in the chart below lets you see how that first trade worked out.

JD is trending in the news after Walmart, Inc.(WMT) offloaded its $3.6 billion stake in JD. Meanwhile, volatility expectations and options prices are much less expensive now than they were when we hit the jackpot 17 months ago.

This Volatility Term Structure for JD shows us the implied volatility for the at-the-money options for each expiration. To learn more about Volatility Term Structure, click here. This graph tells us that options expiring October 18th are relatively cheap. By selecting the October expiration, we will get enough time for the stock to make a bigger-than-expected move.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of JD’s stock price over the past 2 years. You can see that the actual behavior of the stock (the blue histogram) does not match the modeled expectations. This graph tells us that JD makes large moves much more frequently than modeled options prices expect. That is good news for option buyers.

This Volatility Cone shows us the implied volatility of options for each term compared to the average historical volatility (the blue line) of JD options at each term. To learn more about the Volatility Cone, click here. It also shows the high and the low historical volatility for each term. This graph confirms volatility expectations for every term are below the 2-year historical average. In fact, the options at the 2-month term are closer to the extremely low historical volatility. 

JD has a history of making big moves. When JD options are cheap, as they are now, option buyers

have a clear advantage. The stock just made a big move after WMT sold its stake in the company. Our

bet is that the stock can make another big move before the October 18th options expire.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea

To access Odds Online Daily and be able to see any stock you are tracking in this software, click here.

Thank you,

Don Fishback