Options Heat Up as China ETF Gets Iced

Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) is exploring new lows after a rough day for stocks in China

Jan 4, 2016 at 11:52 AM
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Chinese stocks just took it on the chin, sparking a massive global sell-off. As such, the Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) -- one of the biggest exchange-traded funds (ETFs) investing in mainland stocks -- is exploring annual lows, falling as far as $25.34. The ETF has also breached support in the $27-$28 region, which contained its August 2015 plunge, and options activity is hotter than usual today. 


ASHR puts are trading at almost twice the average intraday pace, with nearly 4,900 contracts crossing the tape. Still, the most popular option thus far is the January 2016 26.90-strike call. It seems some traders might be selling the call to open, amid expectations for ASHR to remain south of $26.90 through January options expiration.

Meanwhile, it looks like one speculator initiated a bear put spread by buying to open the weekly 1/8 25-strike puts and selling to open the weekly 1/8 22.90-strike puts. The spread is essentially a bet that ASHR will extend its decline south of $25 by Friday's close, when the options expire. The bearish trader could've simply bought the 25-strike puts, but the sale of the 22.90-strike puts trimmed the initial cost -- and maximum risk -- on the trade, while simultaneously limiting potential reward.

ASHR's short-term puts were more popular than usual even before today's bear gap. The ETF's Schaeffer's put/call open interest ratio (SOIR) of 1.11 stands higher than 93% of all other readings from the past year. In the January 2016 series, the deep in-the-money 41.90 strike is home to peak put open interest of nearly 18,500 contracts. The 31.90 strike is runner-up, with close to 13,600 puts outstanding. In other words, if ASHR is hoping to find options-related support, the shares may be out of luck until $21.90 -- the nearest front-month strike with any significant put open interest.  


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