Bullish Options Traders Bet on Chinese Stock Rebound Amid Bear Market
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Despite a prolonged bear market for Chinese stocks, with the iShares China Large-Cap (FXI) down 18% and KraneShares CSI China Internet ETF (KWEB) down over 40%, options traders are making significant bullish bets on a rebound, particularly in KWEB, signaling a potential shift in sentiment.
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U.S. stocks just keep winning, with the Nasdaq closing out its best quarter since 2020. Across the globe in China, things couldn't be more different.
The iShares China Large-Cap (FXI) is down 18% on the year and in the midst of a 9-month long bear market. The popular China internet fund, the KraneShares CSI China Internet ETF (KWEB) , is down more than 40% from its record in October amid ongoing concerns over AI valuations and trade ware flare-ups.
And just Tuesday, Nike shares fell in after hours trading despite an earnings beat after the shoe giant cited worries about the resilience of the Chinese consumer.
But options traders are acting like these trends could change.
Chinese stocks finally caught a bid to end last week after the country reported manufacturing activity that returned to growth, and the highest services PMI since May. A bounce in FXI quickly faded, but KWEB's notched a three-day rally of almost 4% and traders are piling in for more.
Options volume in KWEB was almost three times the 30-day average on Tuesday, according to Cboe LiveVol data, and of the 628,000 contracts traded, 612,000 were calls, ThinkOrSwim data show. More than a quarter-million of those trades were likely initiated by buyers, compared to under 4,000 put purchases. Of the $48 million in premium traded, $46 million was tied to calls.
That's a rare degree of bullish skew in options flows for any security, especially one with so little trailing price momentum.
Among the top 20 contracts traded in KWEB Tuesday, 17 were calls, and it wasn't just short-term speculators, with just two contracts for Thursday expiry. The most popular contract by volume and dollar amount was the 29-strike call expiring Dec. 18, a trade that needs a 23% rally from here to break even.
The biggest trade of the session was a buyer of almost 102,000 of those calls, an $11 million purchase that was offset by the sale of $930,000 of the 35-strike calls expiring the same day, and $770,000 of the 33-strikes expiring Sep. 18, according to SpotGamma data.
