I am recommending another bearish position — this time a put on HUYA Inc. (NYSE:HUYA) — because the market continues to struggle with the coronavirus situation that began last week.
Investors don’t want to be caught up in the economic fallout, so they are moving away from Chinese stocks.
If you look at the chart of the CBOE S&P 500 Volatility Index below, you can see that the S&P 500’s “fear gauge” is above 18 ahead of the market open.
Daily Chart of the CBOE S&P 500 Volatility Index — Chart Source: TradingView
Anything above 17 is usually a sign that things could get bearish, which is why I’m recommending a put on HUYA.
What Does HUYA Do?
HUYA operates a game streaming platform in China, though it also develops some mobile games. While my Friday recommendation on Dollar Tree, Inc. (NASDAQ:DLTR) was a play on a company with exposure to China, this trade is a bet on a Chinese company.
Since the virus seems to be having the biggest effect in China, that country is likely to experience more of the economic difficulties associated with a health crisis.
HUYA is also a good target for a short-term bearish trade because its technical picture is weak. This latest disruption in China will reduce the optimism Chinese stocks got from improving trade relations with the U.S., pushing the stock lower.
Economic Concerns Make it Harder to Head Higher
As Brent Kentwell said in his December article, HUYA enjoyed a bit of a rebound at the end of the year, partially thanks to its strong earnings.
The stock even managed to push above resistance in the $19-$20 range in early January, when the first phase of the U.S.-China trade deal was signed. But the developing outbreak is making it harder to justify pushing into Chinese stocks.
In the chart below, you can see that HUYA dropped last week, when news of the virus started spreading. Its next support level is just below $17.
Daily Chart of HUYA Inc. (HUYA) — Chart Source: TradingView
Traders looking to protect their portfolios against the global concern over the coronavirus could take advantage of HUYA’s weakness with a long-put option.
HUYA may not actually hit $17 during this downturn. The company performed well on earnings, and some people believe it could push higher over 2020.
With a strike price at $18, traders can still capitalize on the stock’s fall, but they don’t have to bet on it breaking support.
Buy to open the HUYA Inc. (HUYA) March 20th $18 Puts (HUYA200320P00018000) at $1.25 or lower.
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