Traders rack up profits in $FXI

Bullish option traders doubled their money in the iShares China Large-Cap Fund (FXI) today as trade worries appeared to subside.

On June 1, Investitute’s proprietary programs showed that 21,000 $48 calls expiring on July 20 were purchased for $0.73, with shares at $47.17, as part of a bullish spread. These were clearly new positions, as open interest in the strike was only 2,001 contracts before the activity appeared. Minutes later, another trade of the same construction was placed, tripling the opening volume.

The investors were likely betting that concerns over U.S.-China trade conflicts were overblown. The FXI index exchange-traded fund has had a tumultuous few weeks with negotiations swaying markets but keeping its stock price range-bound.

New buyers of those July $48 calls paid up to $1.45 for the contracts today, nearly twice their initial purchase price. The stock rose 3.7% in the same time frame, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

The iShares China Large-Cap  spiked higher this morning to an intraday high of $48.93 but pulled back to close at $48.47, off 0.62% on the session. FXI shares are up 2.5% this week, following sessions by U.S. and Chinese delegates last weekend.