Chinese stocks rebound following signs of stimulus

The Fed’s positive outlook for U.S. banks under its latest iteration of stress-testing saw 29-of-30 banks leap the central bank’s hurdle. That news led to after-hours gains for banking names and may well see the sector rebound Friday. The Chinese financial sector was also provided with positive regulatory news overnight, which led to a strong rebound for banks helping lead a jump in local benchmarks to end the week. The Shanghai composite closed with a gain of 2.7% while the CSI 300 Financials index added 4.9%. Already the iShares China Large-Cap ETF (Ticker: FXI) has opened with a gain of 2.5% in New York. The recovery for the health of Chinese stocks follows a move by the China Securities Regulatory Commission, which announced a trial preferred share program. Essentially it allows certain State Owned Enterprises to issue preferred shares to investors helping revitalize their capital ratios.

The following chart shows open interest in FXI-listed options expiring April and May. Shares closed in New York on Thursday at $33.00 as marked by the vertical dashed white line in the plot. You can see the ascendancy of bullish call options in the upper plot to its right stretching all the way to the 50.0 strike. Thanks to a slide in the FXI since December from above $40.00 per share, many of the bearish put options (lower plot) are in-the-money. They would have value if they expired today. The heaviest concentration of bullish plays for May expiration of around 90,000 contracts is at the 46.0 strike (36% above current price). Bears continue to hang out at the May 34.0 strike where open interest stands at 45,000 contracts. The open interest plots are available in the IB Volatility Lab. Overall open interest across all available FXI strikes is a staggering 4.21 million.


FXI option open interest for April and May expirations







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