In Battered China Stocks, ‘Lottery Ticket’ Trades Gain Favor

In the wreckage of China’s stock market meltdown, some traders are making long-shot bets that officials in Beijing can stoke a recovery.

They’re finding moments to snap up options tied to US-listed exchange-traded funds that track Chinese equities, which have been whipsawed by Covid lockdowns, regulatory pressure and a property crisis. It’s evidence that market participants – who’ve seen shares from Beijing to Hong Kong slump 60% from a 2021 peak – want to be able to capture the upside for the stocks, just in case the government eventually succeeds in stoking a rebound.

“It’s simply buying cheap lottery tickets with a potentially big payout,” said Charlie McElligott, managing director at Nomura Securities International. The worse Chinese stocks fare, “the more attractive it becomes from a risk-reward perspective,” he said.

Traders Chase Call Options For China ETFs

With Chinese leaders keen to stop the stock-market selloff, the bets in ETF options are proof that at least a few investors are taking notice. Even if most traders are too shy to buy the equities outright, and many are actively avoiding them, options offer a way to maximize profits while minimizing potential losses.

“As things get uglier, this creates a little bit of panic among people who are long China, and that could create more demand for protection,” said Rocky Fishman, founder of derivatives analytics firm Asym 500.