Chinese stocks have been making a comeback recently, and option traders are looking for more gains in coming months.
Companies based in China were among the strongest foreign performers earlier this year but pulled back as the U.S. dollar began its scorching rally. Now that the greenback has cooled a bit, these equities are drawing upside trades. For example, our systems show that:
- E-commerce firm JD.com was the target of a bullish call roll this morning, with 5,000 January 27 calls sold for $0.98 and 5,000 March 29 calls bought mostly for $1.09 to $1.11.
- Search company Baidu saw 4,000 June 180 calls purchased in one print today for $11.50 against open interest of 519 contracts.
- The iShares FTSE/Xinhua China 25 Index Fund saw buying in the December 37.50 calls last Wednesday and Friday.
In addition, Shanghai-based travel site Ctrip.com reported strong quarterly results and rising demand last week. Six months ago China was among the best-performing countries on our ResearchLab market scanner, ranking No. 4 as shown on the screen shot below:
Long calls lock in the price where investors can buy stock, allowing them to profit from a rally with limited capital at risk. Their cheap cost can also generate significant leverage on a percentage basis if shares move in the right direction. (See our Education section)