President Donald Trump and a cavalcade of American business leaders landed in Beijing Wednesday for talks with Chinese leader Xi Jinping, and market bulls are following.
Chinese stocks, ETFs and related themes posted some of the biggest rallies in months. Shares of e-commerce giant Alibaba surged 8% despite reporting earnings in the morning that missed most expectations, leading a 2.5% rally in the iShares China Large-Cap ETF (FXI).
Alibaba, 5 days
About five times more calls traded than puts in Alibaba, with more than 75,000 calls bought compared to under 12,000 puts bought, according to ThinkOrSwim data. Among the $160 million traded in options premium as of midday Wednesday, 88% was in calls, according to SpotGamma.
China-centric ETFs were even busier. The KraneShares China Internet ETF was a top-10 traded security by options volume for most of the day, with more than 750,000 contracts traded and almost all the premium – $48 million of $50 million – in calls. Nine of the top 10 trades by dollar amount were call purchases and the most popular contract by volume was the 32-strike call expiring Friday.
“There’s been a noticeable increase in discussion around the potential for a short squeeze in KWEB and renewed momentum in BABA,” Neil McDonald, CEO of Moomoo, the trading platform with a stronghold in Asia, said in an email. “Many retail traders are referring to this as the ‘Trump effect’ in BABA, reflecting expectations that improving U.S.-China dialogue could act as a catalyst for Chinese tech names that have lagged for months.”
One surprising winner in the theme: Ford Motor, whose shares soared 13% after a Morgan Stanley analyst said the carmaker’s energy-storage licensing agreement with China’s Contemporary Amperex Technology, CATL, could be a positive catalyst.
Ford, 5-day
Options in Ford skewed heavily bullish, with more than five times as many calls trading as puts and more than twice as many calls bought as sold. One notable trader bought 7,000 of the $16.85-strike puts expiring in January next year for $245,000, a bet the stock will add more than 25% between now and then.
