Meituan options surge as investors brace for earnings drop

Option trading on Meituan hit a record high ahead of its earnings report on August 27. Outstanding contracts have exceeded 1.5 million, nearly triple the level in May, Bloomberg data show.

Bearish bets dominate, with over 914,000 puts versus about 639,000 calls.

Meituan shares have seen the largest drop among Hang Seng Tech Index members this year as spending rises to protect market share.

Investors are watching results for signs of how the price war with Alibaba and JD.com is affecting profits, with analysts estimating a drop of over 30%.

JPMorgan said competition is tougher than expected and warned of potential earnings downgrades.

The market is pricing in a 4.7% move in the stock after results, in line with the average seen in prior quarters.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Record options activity signals heightened uncertainty in China’s massive food delivery market

The surge in Meituan options trading to 1.5 million contracts, nearly tripling since May, reflects the high stakes of China’s food delivery competition 1.

This options activity is occurring within a market valued at 1.2 trillion yuan (USD 167 billion) in 2023, serving 545 million users who place 56,000 orders every minute 2.

Despite Meituan’s dominant 70% market share, the company faces aggressive competition from JD.com, which has captured a significant portion of the premium food delivery segment by offering comprehensive social insurance to full-time couriers 3 4.

The bearish sentiment is evident in the options positioning, with 914,000 pessimistic contracts outstanding versus 639,000 bullish calls, suggesting traders expect continued pressure from the intensifying price war 1.

2️⃣ Scale advantages provide limited protection when competitors subsidize growth

Even with Meituan’s massive scale, holding nearly 70% of a market projected to grow from 1.64 trillion yuan in 2024 to 1.96 trillion yuan by 2027, the company is burning cash to defend its position 3 4.

JD.com’s aggressive entry strategy includes offering better welfare benefits to delivery workers and heavy promotional subsidies, forcing Meituan to match these investments despite its market leadership 3.