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.
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