The iShares FTSE/Xinhua China 25 Large-Cap Fund lagged the
S&P 500 for about two years as the country's economy slowed,
but activity has increased and share prices are catching up.
The FXI is down 0.87 percent to $38.31 today but has started to
outperform recently, surging 20 percent in the last three months,
compared with a gain of just 8 percent by S&P 500 during that
time. Today's option action is looking for the strength to
continue, highlighted by the purchase of more than 15,000 November
40 calls, most of which priced for $0.58.
lock in the price where the fund can be purchased, letting
investors cheaply position for a rally and potentially generating
significant leverage. Shortly before the November calls were
bought, almost 5,000 of the October 39.50s were sold for $0.34.
Volume was below open interest in those, suggesting that an
investor rolled a position forward in time. If that's the case,
they also increased its size and put more capital at risk on the
long side. (See our
Most gauges of manufacturing activity on the mainland have beaten
expectations in recent months, including HSBC's flash purchasing
managers index yesterday morning. Our
market scanner has also detected a solid flow of capital into firms
operating in the country--especially those doing business online.
Calls outnumber puts in FXI by more than 4 to 1 so far today, a
strongly bullish proportion.
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