Options Trader Targets New Lows for Big-Cap Chinese Stocks

FXI hasn't traded below $40 since last July

Jul 13, 2018 at 2:21 PM
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It's been a rough couple months for Chinese stocks, though the Shanghai Composite added 3.1% this week to keep its weekly losing streak at seven -- its longest since late 2011. Nevertheless, one options traders is betting on bigger losses for Beijing's big-cap stocks, targeting iShares China Large-Cap ETF (FXI) put options in today's trading.

At last check, nearly 64,000 puts have traded on FXI, 1.3 times what's typically seen at this point in the day, and double the number of calls that have traded. Trade-Alert highlights a block of 14,000 October 40 puts that was likely bought to open for about $1.13 million (number of contracts * $0.81 premium paid * 100 shares per contract).

This also represents the most the put buyer stands to lose, should FXI be perched north of the strike when the options expire at the close on Friday, Oct. 19. Profit, meanwhile, will accumulate on a move south of breakeven at $39.19 (strike less premium paid).

Shorter-term traders, on the other hand, are more call-skewed than usual toward the exchange-traded fund (ETF). FXI's Schaeffer's put/call open interest ratio (SOIR) of 0.78 ranks in the 3rd annul percentile. The July 48 strike is home to peak call open interest of 96,742 contracts in the front-month series, and data from the major options exchanges points to significant buy-to-open activity back on June 1 when FXI was trading north of $47.

The shares went on to rally up $48.93 on June 7, but were promptly rejected near $49 -- a familiar layer of resistance that's kept a lid on FXI since March. The fund has since sold off sharply, breaching recent support at its 200-day moving average, and tagging a nearly annual low of $41.67 on July 5. But while the ETF is down 0.2% today at $42.88, it hasn't traded below the round $40 level since last July.

fxi etf daily price chart on july 13


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