NetEase Stock Has Growth Potential; Buy Shares 6.5% Lower

Shares of NetEase, Inc. (NTES) have fallen 26.55% in 2018, making for a great potential entry level for the stock. NetEase shares have been under a lot of pressure this year as slowing growth concerns take their toll. However, the company used to be a Wall Street darling as it powered higher over the years due to its high growth. Since the shares have been under pressure, it may be prudent to initiate a long position via options rather than buying the shares outright. Betting on growing stocks with great fundamentals that are experiencing near-term pressure can be worthwhile for long-term shareholders.

At Macro Analytics for Professionals (MAP), when we see a historical growth company fall to levels we feel are oversold, we look to initiate a long position via a put sale. Being that we believe NetEase is a long-term winner, we are happy to own shares at current levels, and it’s even better if we can own them at lower than current levels. A set-up we like is selling the 1 NTES June 250 Put @ 9.40. At expiration, if NetEase stock is above $250, I will keep 100% of the premium ($940). If NetEase is below $250 at expiration, I will be obligated to buy 100 shares of NTES at $250, but my effective buy price is $240.60. If NetEase falls below $240.60 at expiration, I will lose dollar for dollar just like being long stock. Given that NetEase reports earnings on May 17, 2018, the amped premiums reflect this event.

[Learn the basics of buying and selling puts and calls in Lucas Downey’s Options for Beginners course on the Invetopedia Academy.]

In the chart below, NetEase stock is trading at year-to-date (YTD) lows, and I believe it is due for a bounce. The put sale offers me a bit of a cushion should the stock fall further until expiration: …read more

Read more here: NetEase Stock Has Growth Potential; Buy Shares 6.5% Lower

Category: NTES, BIDU, BABA

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