[Options] Year of the Bull in Chinese Tech?

Sean McLaughlin
April 29, 2024

In today's Flow Show, Steve Strazza laid out the case of how both the Nasdaq 100 and Chinese tech stocks (particularly Chinese internet) might be signaling an important rise in speculative appetite which could fuel the next bull run.

Of the names Steve shared, the one that made the most sense to me was JD.com $JD. Check out this chart:

We're looking at the past year in $JD and it feels to us that if this motor gets running, we could target the low 40's with a good thrust which would be new 52-week highs.

Knowing that we might come into some overhead supply at those levels which could check the rise, and also knowing that upside call options are currently sporting some rich premiums, we're going to put both of these observations to our advantage by utilizing a bull call spread.

Here's the Play:

I like buying a $JD September 30/40 Bull Call Spread for an approximately $2.80 net debit. This premium we pay today represents the absolute most we can lose in this trade in a worst-case outcome:

Likewise, our gains are capped. The most this spread can be worth is $10 (the distance from the long 30 strike to the short 40 strike).

I'll continue holding this spread as long as $JD can both stay above $27 per share and our spread doesn't lose 50% of its value. Any closing price below $27 per share or if the spread loses 50% will be my signal to exit and protect whatever is left of the premium.

Meanwhile, if $JD follows through to the upside, I'll look to close the position for a gain when the stock touches $41 per share. We're likely to run into some overhead resistance there and I won't have any interest in waiting out the consolidation. I'll just take my profits and move on.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

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