Option Trades in China ETFs Swing From Gain to $100 Million Loss

David Marino

Fri, Jan 10, 2025, 2:24 PM 2 min read

(Bloomberg) -- Traders who briefly had been sitting on more than $100 million in paper profits after buying call options in early December on a pair of tiny China-linked ETFs appear to have closed the positions Friday at almost as big of a loss.

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From Nov. 29 through the first week of December, traders picked up calls allowing the holder to buy 18 million shares of Direxion Daily FTSE China Bull 3x Shares (ticker YINN) by January 2026. And on Dec. 2, about 210,000 of the May $15 calls on the Direxion Daily CSI 300 China A Shares Bull 2x Shares (ticker CHAU) were bought.

On paper, the trades, which dwarfed normal options activity in the funds, gained in value as the ETFs rallied in early December. As of the close on Dec. 9, the positions appeared to be up some $138 million on the initial outlay of about $225 million. But since then, the ETFs have retreated to below where they were trading when the bullish bets were placed.

Chinese stocks have retreated since early December, entering a bear market on Friday amid geopolitical tensions that may be further stoked after US President-elect Donald Trump’s inauguration. A late-year rally has faded as investors were disappointed by China’s stimulus measures. Now, with the potential for higher tariffs to crimp exports, shares are under further pressure.

“They gave up; it did seem like each successive stimulus announcement has less impact,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “They were waiting for something — either a rebound or more announcements, but they never got them.”

The contracts traded huge volumes on Friday, with about 200,000 of the YINN and CHAU calls changing hands at an average $5.57 each, and almost 250,000 of the CHAU calls at an average of $0.78 apiece. Based on the prices back in early December when the trades were put on, that comes to a loss of of more than $100 million, according to Bloomberg calculations.

--With assistance from Ye Xie.