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Christopher Langner

China Needs Options

Exchange-traded funds listed in the U.S. flagged Shanghai's equity crash two months before it happened.

Investors in China are discovering that a great way to take a position in a market without fully committing is by simply buying options. If only there were more of those, maybe authorities wouldn't have to intervene so much. Sure, there may be a few more equity crashes along the way, but ultimately, the use of derivatives could transform Shanghai and Shenzhen into true investment destinations.

The number of options changing hands on the China 50 Exchange-Traded Fund swelled to a record last month, Bloomberg News reported today. The contract, the only one of its kind in China, celebrated its first anniversary in February. China didn't allow trading of index futures until 2010. They became hugely popular, and attracted the scrutiny of Beijing after last year's stock-market rout.