Giant bet on snapback in China

By David Russell,

Shutterstock photo

Chinese stocks have taken a beating, but now the bulls are looking for a rebound.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 30,000 May 34 calls for $1.05 in the iShares China Large Cap exchange-traded fund for $1.05. Equal sized-blocks were sold at the same time in the in the May 31.50 puts and the May 35.50 calls for $0.50 and $0.49 respectively. Volume was more than triple open interest in all three strikes, indicating that this is a new three-way spread.

The trade cost just $0.06 and will expand to $1.50 if FXI closes at $35.50 or higher at expiration two months from now--a profit of 2,400 percent. The investor also stands to lose money if the fund goes under $31.50 because of the short puts . (See our Education section for more on the leveraging potential and risk of options.)

The FXI rose 1.69 percent to $33.63 yesterday but is down 12 percent since the year began. The stock has been hurt by slowing industrial production and worries about credit risk on the Chinese mainland.

It's noteworthy that puts were written at the $31.50 strike price because that's near where the fund bottomed last summer and in mid-2012. The investor apparently views that level as solid support.

Yesterday's bullish three-way transaction was the largest trade in the entire session.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: FXI

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