DailyPlay – Opening Trade (PDD) – April 9, 2024

PDD Bullish Opening Trade Signal

Investment Rationale

A few weeks ago, FDX reported better-than-expected earnings, showing both the resilience and uptick in shipping volumes for 2024. As PDD’s Temu competes with Amazon and Walmart on price, FDX’s earnings confirm that the strategy is working. Despite slower shipping times, Temu offers pricing that is substantially lower and looks to continue growing its market share globally. With its recent underperformance, PDD’s price represents an opportunity to add long exposure with a favorable risk/reward ratio.

Technical Analysis

After breaking out above $113 resistance level in Nov of last year, PDD gapped higher but has recently pulled back to this important support level. This provides a favorable entry point from a risk/reward ratio. A break below $109 would suggest that our thesis is incorrect, but the upside is well into the $140’s as our initial upside target. 

PDD – Daily

Fundamental Analysis

With lofty analyst expectations of over 50% annual Revenue Growth and 25%+ EPS growth, PDD is downright cheap at only 13x forward earnings. Despite the growth rate, PDD remains very profitable with strong operating margins and FCF generation. This significantly reduces the downside risk of long exposure and aligns the technicals with strong fundamentals. 

Trade Details

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish Debit Spread

Details: Buy to Open 2 Contracts June 21st $115/$140 Call Vertical Spreads @ $8.38 Debit.

Total Risk: This trade has a max risk of $1,676 (2 Contracts x $838) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $838 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a bearish stock that found support and is expected to bounce higher.

1M/6M Trends: Bearish/Mildly Bearish

Relative Strength: 5/10

OptionsPlay Score: 113

Stop Loss: @ $4.19 Credit. (50% loss of premium paid)

View PDD Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View PDD Trade