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In battered China stocks, ‘lottery ticket’ trades gain favour

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Traders chase call options for China ETFs.

In the wreckage of China’s stock-market meltdown, some traders are making longshot bets that officials in Beijing can stoke a recovery.

Plus, US-based ETFs are trading as some local financial markets shutter for the Lunar New Year holiday. Upticks in options activity have been spurred on as President Xi Jinping’s government pushed curbs on short-selling domestically, opted for state buying of shares in the nation’s largest banks and even replaced the head of the nation’s securities regulator. The government also said it was buying up shares in locally-listed ETFs.

Evercore ISI, for example, recommended clients buy call options for FXI that expire March 28 to take advantage of Chinese equities’ low valuations. That gives traders a way to bet on more stimulus between now and March, when Beijing is set to hold its National People’s Congress meeting. Goldman Sachs Group Inc. has also touted option trades on Chinese assets.

 

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