TipRanks

Wed, Jun 18, 2025, 4:15 PM5 min read

At first glance, circumstances don’t look appealing for PDD Holdings (PDD). A global e-commerce holding company, PDD is, of course, tethered to the health of the Chinese consumer economy. Its two core platforms are Pinduoduo, a social-commerce enterprise, and Temu, a budget online marketplace that brings significantly discounted goods directly from China. However, with the advent of President Donald Trump’s trade tariffs, such businesses face extra scrutiny.

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To be sure, diplomats from both the U.S. and China have finished a first round of negotiations, concluding with a new framework. While details have been modest, the deal includes assurances on the supply of rare-earth minerals and potential tariff easing. At the same time, critics have lashed out, not only due to the lack of specifics but also in the form of skepticism that any meaningful progress has been made.

Fundamentally, though, investors should note that the Trump administration likely understands the consequences of acting too aggressively and thus is unlikely to be irrational. It’s like the reason why the President tends to walk back hard-hitting policies and rhetoric. Just the fact that this framework has materialized is evidence that the White House isn’t really prepared to go toe-to-toe with the Chinese.

That’s good news for PDD stock from an investment perspective. It might even be better news for bullish options traders like me.

For traditional buy-and-hold investors, they often deal with long-term frameworks. When analysts assign price targets, they’re usually 12-month forecasts. Such an extended period provides ample flexibility for the underlying thesis to unfold. Subsequently, the research that investors conduct focuses on the “why” of a particular asset or enterprise.

On the other hand, traders are focused on the “how” — as in, how much, how fast, and how likely. In other words, traders live in the world of probabilities. This is because options expire, meaning that a proposed strategy cannot just address the magnitude of movement (or the y-axis); the trade must also pan out within the allocated time period (x-axis).

When it comes to statistical analysis, traders must have a firm understanding of the overall architecture. For most practical applications, there are two types of probabilities: derivative and conditional. The former represents the odds of a particular outcome materializing across the entire distribution of the target dataset. In colloquial terms, the derivative probability is a baseball player’s batting average last season.