Option Bears Are Blitzing These Chinese Stocks Today

Chinese e-commerce concerns Alibaba and Vipshop are getting crushed

Mar 22, 2018 at 1:39 PM
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The White House this morning said it would unveil a tariff plan for China today, sending several China-based stocks into the red out of the gate. As promised, President Donald Trump just unveiled roughly $60 billion in new tariffs, meant to penalize China for intellectual property theft. Further, Trump warned that it's the "first of many" trade measures that'll be aimed at the Asian nation. Against this backdrop, options traders are swarming the Deutsche Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR), as well as Chinese e-commerce concerns Alibaba Group Holding Ltd (NYSE:BABA) and Vipshop Holdings Ltd (NYSE:VIPS).

FXI Trader Could Bank $1.42M

The FXI exchange-traded fund (ETF) has gapped 3.1% lower to trade at $47.48. Amid escalating trade war fears, FXI shares have struggled recently beneath their 50-day moving average, and are off 12% from their late January nine-year peak of $54.

Today, FXI put options are crossing the tape at three times the average pace, with 60,000 already exchanged. That's compared to just 15,000 FXI call options. Much of the action is attributable to 10,000 long put spreads opened at the weekly 4/6 45.50- and 47.50-strike puts, partially funded by the close of 5,000 bearish spreads at the weekly 4/6 46.50- and 48.50-strike puts, initiated last week. In other words, it appears one speculator rolled down a bearish trade on FXI, per Trade-Alert.

Assuming the new spreads were opened for 58 cents apiece, or $580,000 total (premium paid x 100 shares per contract x number of contracts), the speculator will profit if FXI breaches $46.92 (bought strike minus net debit). The maximum reward is capped at $1.42 per spread, or $1.42 million, which is the difference between the strikes minus the net debit, and will hit on a move below $45 before the options expire on Friday, April 6.

However, the $45 level is home to the ETF's ascending 200-day moving average, and hasn't been breached on a daily closing basis since early December. Perhaps that's why the options trader initiated a long put spread instead of simply buying the 47.50-strike puts outright.

Eleventh-Hour Option Bears Circle BABA

Alibaba stock was last seen 3.9% lower at $187.75, set for its worst drop since the Feb. 1 stock market pullback. From a longer-term standpoint, BABA shares have added more than 77% in the past year, and last week briefly topped the $200 level for the first time since trading in record-high territory back in January.

BABA put options are flying off the shelves at twice the average intraday pace, with more than 85,000 traded so far. The weekly 3/23 185-strike put has garnered notable attention, with possible eleventh-hour buying happening. By purchasing the puts to open, the buyers expect Alibaba stock to extend its retreat and breach $185 by tomorrow's close, when the options expire.

While bought calls have still exceeded puts on an absolute basis during the past two weeks, options traders have demonstrated a much healthier-than-usual appetite for bearish bets over bullish lately. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.46 is in the 75th percentile of its annual range.

Alibaba stock sports a Schaeffer's Volatility Scorecard (SVS) of 91 out of 100. This indicates that BABA has handily rewarded premium buyers over the past year, exceeding options traders' volatility expectations.

VIPS Puts Popular as Stock Sits on Short-Sale Restricted List

Vipshop stock has plummeted 7.9% to trade at $17.38 today, earlier breaching its 50-day moving average for the first time since December. The shares are now on the short-sale restricted list, and put options are changing hands at three times the normal rate.

VIPS has seen more than 4,000 puts traded so far, with much of the action transpiring at the weekly 3/23 17-strike put. It looks like some traders are buying the puts to open, expecting the Chinese stock to sink beneath $17 by tomorrow's close. Just yesterday, VIPS shares peaked at $18.98 -- within a stone's throw of their Feb. 21 two-year high of $19.14.

As with Alibaba, Vipshop put options have grown increasingly popular among buyers, even though absolute call volume still reigns supreme. The stock's 10-day put/call volume ratio on the ISE, CBOE, and PHLX sits at 0.88, higher than 84% of all other readings from the past 12 months.

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