Q2 STOCKS TO BUY

The Massive Options Bet on Big-Cap Chinese Stocks

The iShares China Large-Cap ETF has been swinging higher in 2017, and hit an annual high earlier this month

Jun 22, 2017 at 11:33 AM
facebook X logo linkedin


The iShares China Large-Cap ETF (FXI) has been swinging higher since hitting its most recent low of $33.91 on Dec. 23, up nearly 18%. After notching an annual high of $40.70 on June 8, the exchange-traded fund (ETF), which provides exposure to blue-chip stocks in China, pulled back to a trendline connecting a series of higher lows since December. And with FXI trading back near the $40 level, one options trader on Wednesday seemingly bet on the fund to stage a big move -- regardless of direction -- from this round-number mark.

Specifically, two symmetrical blocks of 12,000 July 40 calls and puts changed hands simultaneously on Wednesday afternoon. The calls were apparently bought to open for $0.45 apiece, while the puts were purchased for $0.90 each. Open interest translations overnight confirm new positions were initiated, making it safe to assume a long straddle was created for a net debit of $1.35 per pair of contracts. Accounting for 100 shares per contract, this equates to an initial cash outlay of $1.62 million.

The net debit paid is also the most the options trader stands to lose, should the fund remain stuck near $40 through expiration at the close on Friday, July 21. Profit, meanwhile, will accumulate on a breakout above the upper breakeven rail of $41.35 (strike plus net debit) or a breach of the lower breakeven rail of $38.65 (strike minus the net debit). 

Since the long straddle requires the purchase of two options -- or "double premium" -- the speculator may have also been hoping to take advantage of the fund's low implied volatility levels. FXI's Schaeffer's Volatility Index (SVI) of 14% is docked in the low 14th annual percentile, meaning short-term options are attractively priced at the moment, from a volatility perspective. 

Today, FXI call options are trading at six times what's typically seen at this point in the session, with 51,000 contracts on the tape. Most of this is due to a nearly 37,000-contract block of weekly 6/23 40-strike calls that crossed earlier at the bid price of $0.07. It's hard to tell whether these calls are being opened or closed ahead of tomorrow's expiration, though, especially considering a similar-sized block was bought to open last Friday.

Looking ahead, FXI shares are heading into a historically positive month of trading, according to data from Schaeffer's Quantitative Analyst Chris Prybal. Since its inception, the fund has averaged a July gain of 3.5%, second only to April. And despite a sharp sell-off in Chinese banks and social media stocks today, the fund is trading up 0.9% at $39.84.
 
 

“Buy This Stock Now!” - Expert Who Called 11x On TSLA

He called a rare 11x on Tesla…

But now, thanks to Elon & Trump’s new alliance…

He says there’s a new opportunity that could be 1,000x BIGGER than Tesla – and it could completely revolutionize a $23 Trillion market.

It’s trading for less than $5 per share right now…

But it won’t be under the radar for long.

Discover The 1,000x Bigger Elon Opportunity Here

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

👀Learn How Dividends Create Passive Income for Life
Receive $200 Off Motley Fool Epic. The Motley Fool Epic $299 discounted offer is based on $499/year list price. Introductory promotion for new members only. Take control of your money and your portfolio with Motley Fool Epic.

💵New Income System Could Pay You $4,243 Monthly
You could collect an average of $4,243 per month starting as early as next week with a new payout system for income investors. New registrations are being accepted for investors who want to be in a position to start with their first payout next week.

🚀Easy 92% Crypto Dividends (No Coins Required)
COIN stock doesn't pay a dividend... But there's actually a new way to collect a massive dividend that's indirectly based on the stock and offers a terrific monthly income (currently yielding nearly 92% on a forward basis).

🤝Free Advisor Match with Wiseradvisor.com
Don't leave your retirement to chance! Get matched with a trusted financial expert for FREE and make the most of your tax refund. Get started now.

⚠️Dennis Quaid's #1 Warning for Americans
Here's the thing: life doesn't come with guarantees. The economy shifts, markets stumble, and years of hard work could slip through your fingers like sand. But it doesn't have to be that way for you. So request a free copy of this Gold & Silver Guide that will arrive right to your doorstep when you act now.

 

 
 

Follow us on X, Follow us on Twitter