$FXI option bears score

Bearish option traders have scored a big win in downside positions on the iShares China Large-Cap Fund (FXI) today.

On Jul. 6, Market Rebellion’s Unusual Options Activity programs detected the the purchase of 49,565 August $42 puts for $0.51 with shares at $44.26. Volume was clearly above the previous open interest of 24,539 contracts, indicating that this was a new position.

Those puts sold for as much as $2.20 today, more than 4 times their purchase prices. The stock fell 8.54% in the same time frame, showing how quickly options can far outperform moves in their underlying shares on a relative basis.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

FXI is currently lower by 5.38% at $40.48 on the day. The exchange-traded fund tracks a basket of Chinese equities such as Alibaba (BABA) and Tecent (TCEHY)