A bullish trade in options on a Chinese ETF before a surprise rate cut has raised concerns a trader was acting on inside information.
One investor made the trade in the options market one day before China’s central bank lowered interest rates for the first time since 2008, reports Steven M. Sears at Barron’s.
On Thursday, China lowered the benchmark rate on loans and deposits by 25 basis points. [Rate Cut Stokes China ETFs]
“The news surprised many investors, but one was supremely well positioned to benefit from the rate decision. This investor traded 40,000 options on the iShares China FTSE China 25 (NYSEArca: FXI),” Sears wrote.
FXI was up about 2% in U.S. afternoon trading Thursday.
The investor profited by selling puts on the China ETF and buying calls, Barron’s reported.
“This one China investor could be exceptionally lucky. Of course, anyone who makes big options trades would likely protest any assertion that performance is attributable to luck. Nonetheless, market regulators should review the trade,” Sears wrote.
iShares China FTSE China 25
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.