How These ETFs Stack Up Amid China's Market Meltdown

A closer look at the iShares FTSE/Xinua China 25 Index ETF (NYSEARCA:FXI), the Direxion Daily China Bull 3x Shares ETF (NYSEARCA:YINN), and the Direxion Daily China Bear 3x Shares ETF (NYSEARCA:YANG)

by Alex Eppstein

Published on Jul 8, 2015 at 2:07 PM

Unless you've been living under a rock, you probably know that Chinese markets have been imploding. In recent days, we've highlighted individual U.S.-listed Chinese stocks that have fallen victim to the sell-off. This afternoon, however, I'd like to turn to a few exchange-traded funds (ETFs) to see how they're faring amid this volatility -- specifically, the iShares FTSE/Xinua China 25 Index ETF (NYSEARCA:FXI), the Direxion Daily China Bull 3x Shares ETF (NYSEARCA:YINN), and the Direxion Daily China Bear 3x Shares ETF (NYSEARCA:YANG).

FXI, which is meant to track the returns of the FTSE China 25 Index, is down 5.2% today at $39.76 -- bringing it into negative year-to-date territory. In fact, in the last three sessions alone, the ETF has surrendered 13.2% of its value. This is an encouraging development for short sellers. Roughly 42 million shares of the iShares FTSE/Xinhua China 25 Index ETF are sold short, or about one-quarter of its float.

Also staring at steep losses is YINN -- which is designed to produce daily returns three times those of the BNY China Select ADR Index (BKTCN) -- down 16.9% at $27.50. Week-to-date, the shares have plummeted an astounding 36.8%, and are on pace to close at their lowest level since late October. Traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been wagering on a pullback in recent months, too, per Direxion Daily China Bull 3x Shares ETF's 50-day put/call volume ratio of 0.23 -- which ranks in the bearishly skewed 68th annual percentile.

On the other hand, YANG -- which seeks triple the returns of the inverse of BKTCN, by focusing on short positions -- sports an intraday lead of 15.7% at $100.47. In other words, this ETF increases in value as Chinese equities decrease -- meaning the last few days have been very good to shareholders. Week-to-date, YANG has soared over 47%, and is above the century mark for the first time since late March.

However, this is bad news for recent option traders. During the last 10 days at the ISE, CBOE, and PHLX, speculators have bought to open 1.14 Direxion Daily China Bear 3x Shares ETF puts for every call. What's more, this reading sits in the 92nd percentile of its 12-month range, suggesting traders have been banking on losses, rather than a bounce.

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