To The Moon

NetEase will release its financial report before the market opens on February 20, Eastern Time. Institutional expectations$NetEase (NTES) $2024Q4 is expected to achieve revenue of 27.164 billion yuan, a year-on-year increase of 0.09%; The expected earnings per share are 11.68 yuan, a year-on-year increase of 15.38%.

Nomura expects NetEase's PC game revenue to increase 25% year-over-year as Blizzard games resume, but Mobile game revenue is expected to decline 6% year-over-year due to the strong launch of the popular game Justice Mobile in 2023.

Nomura analysts pointed out in a recent report that NetEase's online gaming business should bottom out in the third quarter, and its operating income growth is expected to continue to improve from the fourth quarter. They added that new promising titles in some key games, as well as the underlying effects of normalization, will drive its 2025 operating income growth.

NetEase launched two new games in December-"Where Winds Meet" and "Marvel Rivals"-and analysts recently noted that the success of "Marvel Rivals" coupled with the contribution of "Where Winds Meet" should pave the way for stronger growth momentum in 2025. Jefferies expects NetEase's overall game revenue to grow by 8% in 2025, and PC games are expected to grow by about 25%.

NetEase's stock price fluctuations after its earnings report

The options market has overestimated NTES stock volatility 75% of the time in the past 12 quarters. The forecast movement after the earnings announcement averages ± 6. 5%, while the average of actual earnings movement is 4.3% (absolute).

What is the Wide Straddle Strategy?

In long wide straddle options, investors buy both out-of-the-money call options and out-of-the-money put options. The strike price of a call option is higher than the current market price of the underlying asset, while the strike price of a put option is lower than the market price of the underlying asset. This strategy has significant profit potential because the call option theoretically has unlimited upside if the price of the underlying asset rises, while the put option can make a profit if the price of the underlying asset falls. The risk of the trade is limited to the premium paid for these two options.

An investor shorting a wide straddle sells an out-of-the-money put and an out-of-the-money call at the same time. This approach is a neutral strategy with limited profit potential. Shorting a wide straddle option is profitable when the underlying stock price is trading within a narrow range between break-even points. The maximum profit is equal to the premium obtained by selling two options minus the transaction cost.

NetEase short-selling wide straddle strategy case

Stock NetEase is currently trading at $104.3. Investors can implement the short wide straddle strategy by:

Sell a call option with an exercise price of $112, and premium is $153.

Sell a put option with a strike price of $92, and premium is $127.

• Stock Price: $104.3

• Sell call option: Strike price $112, premium $153

• Sell put: Strike price $92, premium $127

• Each option contract represents 100 shares

1. Maximum benefit:

• The maximum gain is the total premium received, divided by 100 shares to calculate earnings per share:

  • Maximum gain = (153 + 127) × 1 = $280。

2. Break-even point:

• Call Option Breakeven Point：

  • Strike Price + premium Received = 112 + (153 ÷ 100) = 112 + 1.53 = $113.53

• Put Option Breakeven Point：

  • Strike Price-premium Received = 92-(127 ÷ 100) = 92-1.27 = $90.73

3. Summary:

• Maximum benefit: $280

• Break-even point：

  • Call Options: $113.53

  • Put Options: $90.73

If the stock price exceeds $113.53 or falls below $90.73, the strategy will start losing money.