Bearish ETF Bets Cheapest in Six Weeks: China Overnight
Options traders are paying the least in six weeks to protect against drops in the largest Chinese exchange-traded fund in the U.S. on prospects the government will take steps to sustain growth in Asia’s biggest economy.
The cost of six-month puts on the iShares China Large-Cap ETF had a 3.4-point spread with calls Aug. 2, the smallest gap since June 19, options data compiled by Bloomberg showed. The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. rallied for a fourth straight week in the longest advance since January, led by Ctrip.com International Ltd. (CTRP), China’s biggest online travel agency.
The puts cost has declined 15 percent from a June peak when an interbank cash squeeze sent money-market rates to record highs. The People’s Bank of China last week added funds into the financial system for the first time in five months. China’s cabinet pledged to prevent growth from slipping below a “reasonable” level, after an official manufacturing index for July unexpectedly rose.
“The market has already priced in a lot of the negative issues in China,” Jay Jacobs, a research analyst at Global X Funds, a New York-based exchange-traded fund firm that manages $2 billion in assets, said by phone Aug. 2. “Based on the commitment we’ve seen from the government in terms of solving the liquidity crunch, we’ll see stabilization in the market.”
Implied volatility, used to gauge the cost of options, for six-month contracts with an exercise price 10 percent below the China ETF cost retreated to 25.2 last week from a nine-month high of 29.6 reached June 25. The measure for calls 10 percent above slipped 14 percent to 21.9.
The China ETF advanced 0.7 percent to an eight-week high of $34.97 in New York, and the China-US gauge gained 2 percent to 94.73. The Hang Seng China Enterprises Index (CPMINDX) in Hong Kong slipped 0.2 percent to 9,734.81, while the Shanghai Composite Index added 0.9 percent to 2,029.42 in a second week of gains.
The July reading of China’s official Purchasing Managers’ Index rose to 50.3 from 50.1 in June and exceeded the analysts’ median estimate of 49.8, data showed last week. Government agencies are scheduled to release July trade figures and inflation data this week.
Ctrip surged 20 percent to $43.30 last week, the most since May 10. Goldman Sachs Group Inc. boosted the share-price estimate on the Shanghai-based company’s American depositary receipts by 55 percent to $45 on Aug. 2, after second-quarter profit beat analysts’ estimates. Barclays Plc and Stifel Nicolaus & Co. raised their ratings on Ctrip to buy last week.
Renren Inc. (RENN), an operator of a social networking website, jumped 17 percent last week to $3.78. The Beijing-based company said June 28 its board approved a plan to buy back as much as $100 million of its ADRs within a year.
E-Commerce China Dangdang Inc. (DANG), the nation’s biggest online book retailer, rallied 19 percent for the week to $10.54, the highest level since April 2012. Macquarie Group Ltd. lifted its 12-month price estimate for Dangdang by 77 percent to $13.30 Aug. 2, reiterating the equivalent of a buy recommendation.
Youku Tudou Inc. (YOKU), owner of China’s biggest video websites, climbed 18 percent to $25.02 last week. The company is scheduled to report second-quarter results Aug. 8. Sina Corp., the most-popular Twitter-like service provider in China, jumped 15 percent to $75.72, the highest level since March 2012.
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