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Netease Sets Up with Notable Call OI

by | Jun 6, 2021

NetEase (NTES) putting in a reversal candle on Friday and back last week just above the prior range breakout and the 21-MA, nice risk/reward setup in the name that has seen bullish flows accumulate. Friday’s low was also right at VWAP from the May low. Shares gapped higher on earnings in mid-May and rallied up to $120 before pulling back and forming a wedge. A move back above $117.50 has potential to move out to $127. NTES has seen a lot of bullish flows including buyers in the July $115 calls, December $105 calls, and January $115 calls. The September $110 calls still have 8,500 in OI from buyers in March.

The $76.26B company trades 22.8X earnings, 6.33X sales, and 4.9X cash. NTES is projecting high-teens revenue and EPS growth in 2021. NTES continues to see strong growth in their core franchises while new games like Revelation Mobile said solid user growth in Q1. They have a big slate of games expected in 2021 including three spinoffs of some of their most successful titles while international expansion remains a big theme for the company. NTES sees Japan as a major market opportunity this year and expect momentum from a recent collaboration with Pokemon. Hedge fund ownership fell 5.5% but Melvin Capital a new 2.5M share position and call options for another 800,000 shares. Somerset Capital also with a new position. Analysts have an average target for shares of $121 with a Street High $155. UBS raising estimates in May as NetEase remains a top online gaming play because of the company’s promising outlook with a solid portfolio and an advanced track record of innovation.

Trade to Consider: Long the NTES July $120 Calls for $3 or Better

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