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Who said equities don’t crash up? Over the past six trading days, FXI, the ETF that tracks Chinese companies, has rallied 7.5 percent, the equivalent of 2.15 standard devs. Whether that’s due to not having to deal with Trump, or China’s economy growing in the COVID world faster than other countries, or just because it felt like it, that’s just the latest of the big jumps FXI has had this year. The question is, will FXI drop back down like it has after the previous rallies? FXI’s OTM puts are trading over equidistant OTM calls, indicating that the market sees a bit more risk to the downside. And if the new administration starts talking tough with China and keeps the trade war stewing, that could keep a lid on FXI and maybe even send it lower. That’s why a contrarian trader might see this rally as a bearish opportunity. If you think that FXI might drop in the next few weeks, the long put vertical that’s short the 52 put and long the 54 call in the March expiration with 51 DTE is a bearish strategy that has a 63% prob of making 50% of its max potential profit before expiry and that generates $.04 of positive daily theta.
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