Bulls prowling in the China shop
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.
These long calls 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 Education section)
Most gauges of manufacturing activity on the mainland have beaten expectations in recent months, including HSBC's flash purchasing managers index yesterday morning. Our researchLAB 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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