Tencent Options Signal Biggest Post-Results Move in 11 Years

(Bloomberg) -- Hong Kong’s equity traders haven’t been this nervous over Tencent Holdings Ltd.’s earnings in more than a decade.

They’ve been buying derivatives to protect against losses, with bearish puts now costing the most in four years relative to bullish contracts. With the Internet giant reporting fourth-quarter results after Wednesday’s close, the options market is now pricing in a massive 7.1% move either way for the shares when trading reopens. That would be the biggest move since at least 2009, according to data compiled by Bloomberg.

The company, one of the largest stocks in the Hang Seng Index, is projected to see its fastest pace of revenue growth since 2018. Investors will be looking for signs that the revenue expansion can continue after the company picked up millions of new gamers who stayed home during the coronavirus outbreak.

Tencent’s shares have lost about 20% in the past month, dragged lower by a rout in Hong Kong equities that tipped the Hang Seng Index into its second bear market in two years. The 50-member gauge this week traded at 99% of book value, a level only seen twice before in data compiled by Bloomberg going back to 1993. That means investors are pricing firms’ assets at less than their stated worth.

The Hang Seng Index lost 4.2% Wednesday, while Tencent slumped 4.5%.

Mainland-based traders have remained bullish on Tencent, boosting their holdings by 24% since the start of the year. They own about 2.3% of Tencent’s listed shares, the highest proportion in at least three years, according to data compiled by Bloomberg.

©2020 Bloomberg L.P.

With assistance from Bloomberg