To The Moon

Recap of Major Flows

On August 20th, an article highlighted bullish flows in the $KraneShares China Internet ETF (KWEB)$ with the $KWEB 20250321 30.0 CALL$ , and commented positively on Duan Yongping's selling of at-the-money puts, suggesting paying attention to Chinese stocks.

I took a relatively conservative approach without going overweight, having had previous experiences of catching falling knives in Chinese stocks - a process that was quite unpleasant, to put it mildly. There was no bottom, just lower lows.

However, this time around, Chinese stocks didn't disappoint investors for too long. On Tuesday, they rallied sharply, with KWEB surging to $30, and the aforementioned $KWEB 20250321 30.0 CALL$  flow quietly covering their position.

How much did this flow make? Having sold half their holdings during the September pullback, the remaining position doubled, resulting in roughly a 25% gain - decent but not exceptional. If a black swan event had dragged this out another month or two, it may have merely broken even. Using bullish options to catch bottoms carries this type of risk. Duan Yongping's at-the-money put sales likely offered a better risk/reward.

New KWEB Flows

The current question is whether the $KraneShares China Internet ETF (KWEB)$ can continue rallying back towards the $36 highs.

Tuesday's new flows were limited and fairly straightforward:

Most took a conservative approach, selling options to offset long premium paid:

Sold $KWEB 20250117 27.0 PUT$ 
Bought $KWEB 20250117 31.0 CALL$ 
Sold $KWEB 20250117 36.0 CALL$ 

Or:

Sold $KWEB 20241220 26.0 PUT$ 
Bought/Sold $KWEB 20241220 36.0 CALL$ 

The December $36 calls straddled the bid/ask, so direction is unclear, but either side seems reasonable depending on one's view. Those strongly bullish could buy, while those expecting $26-$36 range could sell.

And of course, the conservative put-selling flows:

Sold $KWEB 20241101 29.0 PUT$ 

New FXI Flows

In contrast to KWEB's conservative positioning, FXI saw more active and diverse strategies employed.

Outright bullish buy flows included:

Bought $FXI 20241115 33.0 CALL$  for 150k contracts

Bought $FXI 20241018 34.0 CALL$  for 37.8k contracts

Bought $FXI 20241018 31.5 CALL$  for 37.8k contracts

Covered call selling:
Sold $FXI 20241220 31.0 CALL$ 

Short straddle (vol selling):
Sold $FXI 20241220 26.0 PUT$  for 10k contracts
Sold $FXI 20241220 35.0 CALL$  for 10k contracts

Indeterminate long/short:
FXI stock
$FXI 20241018 28.0 PUT$ 
$FXI 20241018 28.0 CALL$ 

Calendar put spread (bearish):
Sold $FXI 20241101 26.0 PUT$ 
Bought $FXI 20241115 26.0 PUT$ 

Single Stock Flows

While the FXI flows look dizzying, the key is grasping the broader directional bias, which for single stocks leans bullish:

$Pinduoduo (PDD)$ - Conservative put selling
Sold $PDD 20241115 110.0 PUT$ 

$Alibaba (BABA)$ - Bullish call spread, >$125, <$150
Sold $BABA 20250117 125.0 CALL$ 
Bought $BABA 20250117 150.0 CALL$ 

Overall, the bias in Chinese stocks remains moderately bullish currently. To hedge against potential selloffs, one could sell fairly basic out-of-the-money puts to collect premium decay, such as the $KWEB 20241101 29.0 PUT$ .