Options Traders Are Betting China's Bank Rally Has More to Go

  • Chinese lenders have surged to their highest since 2015
  • Volume of ICBC call options hits highest since January 2011

Record financing data and earnings optimism are helping send shares of Chinese lenders soaring, with options traders paying up to position for further gains.

The cost of bullish bets on Bank of China Ltd. has surged to the highest in 19 months, and a similar trend is emerging for Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd., data compiled by Bloomberg show. As the shares jumped to their highest prices since 2015, the volume of bullish options on the companies climbed to at least five times their 20-day averages.

Data showing record levels of new credit this week boosted confidence in the Chinese economy. The nation’s banks may see their first cycle of earnings upgrades since 2014 as net interest margins will probably expand and credit quality improve in the next few years, Morgan Stanley analysts including Richard Xu wrote in a note published after the market closed Tuesday. They raised their 2017 and 2018 profit estimates for most of the country’s lenders. An equal-weighted index tracking those listed in Hong Kong has rallied for six days, closing at the highest level since July 2015.

Though Bank of China, ICBC, Construction Bank and Agricultural Bank are not scheduled to report their financial results until at least the end of March, investors are taking a bullish view on the shares.

  • The cost of options betting on a 10 percent gain in Bank of China has climbed to the highest since July 2015 relative to contracts wagering on a decline of the same magnitude, according to three-month implied volatility data compiled by Bloomberg.
    • The number of calls changing hands on Wednesday was about five times the 20-day average and almost double put trades, reaching the highest level since March.
  • For ICBC, the cost of bullish versus bearish options has surged to the highest in almost a year.
    • Almost 90,000 calls traded on Wednesday, the most since January 2011 and compared with a daily average of fewer than 6,500 contracts. About 48,000 puts changed hands.
  • Bullish contracts on Construction Bank are near the most expensive in six months relative to puts. The volume of calls traded on Wednesday climbed to the highest since April 2015 and was seven times greater than the 20-day average.
  • Agricultural Bank calls cost the most since June relative to puts, with the volume of bullish options traded on Wednesday 10 times higher than the average.
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