NTES released their earnings report today. They have been having a really nice move and I had been kicking myself for not getting into a position sooner. The game plan was to wait until they release their earnings report and then make a momentum trade.
NTES report disappointed. Their revenue was higher than ever, but a large chunk of that came from abandoned accounts that they had closed. Their advertising business had lost money again this quarter. Because of the poor report (and an analyst downgrade probably didn't help), the stock had a big gap down, over 10%, on 4 times the average volume.
With expiration just around the corner I am going to place a August bear call. I don't expect NTES to make up any ground from the gap because it is still within the bollinger bands, no technically it isn't over sold. All indicators are pointing bearish - MACD, RSI, OBV, crossed below its 20 day ema.
With time decay on my side, I am going to play the bear call a little more aggressive, looking to short my call right ATM. I am going to short the 42 strike for $1.15 and buy the 47 for 0.15, for a net credit of $1.
PE: Max reward,
SE: Roll the bear call out to Sept for a credit.
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