Market News

December 14, 2016  Wed 10:12 AM CT

Beijing-based JD.com is drawing downside option activity amid reported tensions between China and the United States on economic and political policies.

A report in the China Daily today suggested the possibility of actions against a U.S. car maker following repeated criticism by President-elect Donald Trump over trade deals with the Beijing government, as well as his recent conversation with the Taiwanese president. Quoting a senior Chinese official, the state-sponsored newspaper said an unidentified American auto company could face penalties for "monopolistic behavior."

Against that backdrop, JD saw the purchase of 10,000 March 25 puts mostly for $1.13 at the same time this morning. This is clearly a new position, as volume was more than 4 times the open interest in the strike.

Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. These contracts are safer than shorting a stock directly, as the options limit the amount of cash that can be lost if shares rally. (See our Education section)

JD is up 1.84 percent to $27.15 in morning trading and has risen 11 percent in the last month. The Chinese e-commerce company reported bullish results on Nov. 15 and is expected to announce its next quarterly numbers in pre-market hours on Feb. 28.

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