President Donald Trump's arrival in Beijing for high-stakes talks with Chinese leader Xi Jinping has ignited a significant rally in Chinese-related stocks, with bulls betting heavily on positive outcomes from the diplomatic engagement. The market response saw Chinese stocks, ETFs, and related themes experiencing some of the most substantial gains in months.
E-commerce giant Alibaba (BABA) defied expectations, surging 8% despite reporting earnings that missed analyst forecasts. This surge propelled the iShares China Large-Cap ETF (FXI) up by 2.5%. Alibaba's options market reflected the bullish sentiment, with call options trading approximately five times more frequently than puts, totaling over 75,000 calls compared to fewer than 12,000 puts. Approximately 88% of the $160 million in options premium traded was in calls.
Alibaba, 5 days
China-focused Exchange Traded Funds (ETFs) also saw heightened activity. The KraneShares China Internet ETF (KWEB) was among the top-10 most traded securities by options volume, with over 750,000 contracts changing hands. The vast majority of the premium, $48 million out of $50 million, was allocated to call options. Nine of the top ten trades by dollar value involved call purchases, with the 32-strike call expiring Friday being the most popular contract.
Neil McDonald, CEO of Moomoo, noted a significant increase in discussions surrounding a potential short squeeze in KWEB and renewed momentum in Alibaba. He attributed this to the 'Trump effect,' with retail traders anticipating that improved U.S.-China dialogue could catalyze Chinese tech stocks that have underperformed for months.
In a surprising development, Ford Motor (F) shares experienced a remarkable 13% increase. This rally was attributed to a Morgan Stanley analyst's report highlighting the potential positive impact of the automaker's energy-storage licensing agreement with China's Contemporary Amperex Technology (CATL) as a key catalyst.
Ford, 5-day
Ford's options market also showed a strong bullish bias, with calls outnumbering puts by more than five to one, and twice as many calls bought as sold. A significant trade involved the purchase of 7,000 January $16.85-strike calls for $245,000, betting on a more than 25% stock appreciation by expiration.
