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Beware These China Stocks in the Short Term

Karee Venema

Upbeat U.S.-China trade headlines fueled buying on Wall Street on Tuesday, lifting Chinese stocks Bilibili Inc (NASDAQ:BILI) and IQIYI Inc (NASDAQ:IQ). However, both names are down today, and, unlike cloud concern Twilio (TWLO), seasonality suggests the shares of BILI and IQ could be headed even lower -- a move some speculators have been bracing for.

Put Buyers Blast Bilibili

Per data from Schaeffer's Quantitative Analyst Chris Prybal, Bilibili has been one of the worst stocks to own during calendar weeks 25 through 28, averaging a loss of 32.4% since inception -- though that encompasses just one year of data. The shares of the video sharing website have already shed 30% since their Feb. 28 annual high of $21.50, with a recent rally quickly contained by the equity's 200-day moving average.

bili stock daily price chart on june 19

Based on BILI's current perch at $15.10, down 0.4% today, another move of this magnitude would put the shares back near $10 by this time next month. The move would certainly be welcome by options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.36 ranks in the 89th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Shorting on IQ Stock Accelerates

Iqiyi stock is down 3.2% today to trade at $17.89, but still maintains a 20% year-to-date lead. The shares could be set for even more short-term losses, if history is any guide. Data from Prybal shows IQ has averaged a loss of 14.5% through calendar weeks 25 through 28, though the Chinese stock first began trading on the Nasdaq in March 2018.

iq stock daily price chart on june 19

Options traders at the ISE, CBOE, and PHLX have been buying to open IQ puts relative to calls at an accelerated clip, per the stock's 10-day put/call volume ratio of 0.61, in the elevated 84th annual percentile. Shorts have been increasing their bearish exposure, too, with short interest up 10.6% in the two most recent reporting periods, to 56.82 million shares -- a healthy 18.2% of IQ's float, or six times the average daily pace of trading.