My view on PDD before the earnings report

What is the Market Pricing?

The options market showed a significant surge in implied volatility (IV) ahead of the earnings report, with ATM IV around 71.5%, while the 30-day historical volatility was only about 24.8%. The volatility risk premium reached as high as +46.7 basis points—this means option pricing is significantly higher than actual volatility, indicating the market is pricing in a major binary event. The implied expected intraday move is approximately ±9–11%.

Win rate under similar pricing conditions over the past 2 years (high IV + stock price down YTD + high historical EPS beat rate): The win rate for going long on the next day's gain is only about 33%, while the win rate for the downside is about 67%.

The Most Counterintuitive Core Conclusion

PDD beat EPS expectations in 7 out of the last 8 quarters. However, even with strong quarterly profit performance, the stock price has fallen due to narratives like slowing growth. A high EPS beat rate does not equal a high win rate for stock price appreciation—the Q2 FY2024 case is the most typical: EPS beat expectations by 17%, but a slight revenue miss led to a single-day stock price plunge of about 28%. The key things to watch are revenue growth rate and management's forward-looking commentary.

Strategy Priority Recommendation: In the current high IV environment, the expected value of selling strategies (Short Strangle or Bear Put Spread) is superior to directional long options, but extreme upside risks at the Q4 FY2023 level or extreme downside risks at the Q2 FY2024 level must be strictly controlled. Calendar spreads that take advantage of term structure backwardation are a relatively robust structural arbitrage choice.