PDD Bullish Calendar Call Spread with 485% Upside


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This PDD Calendar Call Spread Can Net 485%

Bullish play with a target stock price of $160

Strategy has +485% upside potential and 38% undervalued


Strategy: PDD Calendar Call Spread
Sell 05-Jul-24 160 Call1.54
Buy 19-Jul-24 160 Call2.77
Debit:$1.23


PDD Holdings - American Depositary Shares has increased by +1.8% today to $149.59. The shares have been in a steady uptrend since June 7, based on PDD moving averages. Setting up this calendar spread with strikes at $160 gives you a bullish bias to tap into PDD stock's strength.

Option Profit Calculator Results for PDD Calendar Spread at 05-Jul-24 Expiration

In this scenario, the optimal stock price for the option strategy would be $160.00 on the date of the first expiration, July 5, 2024. This is equal to the strike price of the options in the spread. Since PDD is in a technical uptrend currently, and the strikes are above the current stock price of $149.58, the spread is taking advantage of the stock's upward momentum. If the stock price is $160.00 at expiration, we can benefit from the 05-Jul-24 call, which we sold, expiring worthless, and the option that we are long, the 19-Jul-24 call, will still have time premium built in.

Since we do now know what the exact implied volatility will be on July 5, we can use our historical data to make an educated estimate to help us calculate the value of the 19-Jul-24 option. Applying the median historical implied volatility of 55.7 from similar options, the theoretical value of the call is 7.20 at the date of the 05-Jul-24 expiration. Using the above assumptions gives us a potential upside of +485% for this calendar spread.

PDD Calendar Spread Value vs. Market Price

According to Market Chameleon estimated value, PDD Calendar Spread is trading at a 38% discount to historical benchmark.

If we use historical data to measure how similar spreads in PDD were priced in the market, the 4-year average price was 1.99, with a high mark of 3.61 and a low of 0.98.

Currently, the calendar call spread is bid at 1.09 and offered at 1.23. The midpoint of the spread is 1.16.

If we use 1.99 as our historical fair value benchmark, the current market ask price is at a 38% discount, while the current market midpoint represents a 42% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
1.091.231.161.993.610.98
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The PDD calendar call spread we've identified here can be a good way to play a bullish outlook because the option strategy has a +485% upside potential, is 38% underpriced relative to historical measures, and will benefit if the stock continues to trend higher to $160.

See how Market Chameleon can help you make smarter and more efficient trades!



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Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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