China’s A-shares, the stocks trading on mainland exchanges in Shanghai and Shenzhen, have taken a drubbing in recent weeks with the Shanghai Composite down more than 12% since June 12. The benchmark mainland Chinese index slipped another 3.5% during Thursday’s Asian session.
Dramatic declines like those should make investors ponder their options for hedging long positions in A-shares positions or profiting from declines in those stocks. Fortunately, options are now available on the Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT). Options on the A-shares small-cap ETF launched this week and appear to be a well-timed tool for investors looking to profit from further declines or a snapback rally in CNXT.
Underscoring the intensity with which global investors bid up A-shares through the first five months of this year, CNXT is off 14.7% over the past month but is still sporting a year-to-date gain of 85.5%, enough to keep in the top spot among all non-leveraged ETFs on a year-to-date basis. With moves like in short time frames, CNXT options could prove particularly useful (and profitable) for traders looking to capture outsized short-term gains in the ETF. [China ETF’s Moment in the Limelight]
Although options on CNXT are new, the concept has plenty of merit for at least two reasons. First, CNXT tracks the SME-ChiNext 100 (SZ399611), which provides exposure to the 100 most liquid mid- and small-cap stocks that trade on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange (SZSE).
The SME Board is viewed as China’s NASDAQ, leading to CNXT’s heavy tech exposure. CNXT allocates a Nasdaq 100-esque 50.6% of its combined weight to technology and consumer discretionary, something to think about when it comes to CNXT options at a time when some global investors are comparing Shenzhen stocks today to the Nasdaq circa 1999. [Meet This Year’s Top-Performing ETF]
Second, there is volatility, one of the pillars of options trading and A-shares have plenty of that. Consider the three-year standard deviation on CNXT’s large-cap stablemate, the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK), is 26.6%, according to Market Vectors data. That is more than double the three-year standard deviation on the MSCI Emerging Markets Index.
CNXT is just 11 months old and already has almost $91 million in assets under management, nearly $43 million of which have flowed into the ETF this year.
Market Vectors ChinaAMC SME-ChiNext ETF Options Chain
Table Courtesy: Nasdaq