Options Alert: Call Buyer Gives Chinese Tech Stock More Time for a Potential Move

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Chinese technology stocks jumped last week, and one big options trader is targeting a former high flier.

Check out this unusual options activity in Shanghai-based e-commerce company Pinduoduo (PDD):

  • A block of 15,000 April 50 calls was sold for $1.67 against open interest of 18,026 contracts.
  • An equal number of June 50 calls was purchased at the same time for $4.92 against open interest of 2,737 contracts.

Calls fix the price where investors can buy a security. They tend to appreciate when stocks rise but can also become worthless if the underlier doesn’t reach a certain level by expiration.

Given the different open interests in the two contracts, it appears that Monday’s trader entered the session owning the April calls. He or she then apparently sold those and rolled their capital to the June options.

Making the adjustment cost a net $3.25 and provides an additional two months for the stock to rally.

Pinduoduo (PDD), weekly chart, showing 2020’s rally and 2021’s correction.

PDD fell 6.1 percent to $39.99 yesterday. It peaked above $200 in early 2021, but dropped after Beijing increased regulation of Chinese technology stocks. The sector jumped last week after officials expressed support for the industry.

PDD also reported mixed quarterly results on Monday, with profit beating estimates but revenue coming up short. The company previously focused on traditional e-commerce but is now attempting to shift toward marketing agricultural products.

Overall options volume was almost triple the daily average in the company yesterday, according to TradeStation data.

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