The large $40 call position in the 3x leveraged Direxion China Bull ETF ($YINN 20260116 40.0 CALL$ ) that we discussed on October 3rd was closed out yesterday.
While 2026 expiries don't necessarily require such urgency to exit, this trader made two crucial mistakes compared to other large option players, leaving them with little choice but to close:
Failure to take profits by rolling the position.
The inherent deleveraging risk in 3x leveraged ETFs.
We've repeatedly stressed the importance of rolling one-sided directional bets to lock in profits and re-load for further upside. Institutions will often roll profitable call positions to higher strikes, preserving capital while redeploying profits to stay exposed. This removes any psychological burden of giving back profits.
The roll timing is subjective - some prefer locking in gains earlier for peace of mind. But without rolling to secure principal, a major trend reversal leaves the trader vulnerable, questioning whether it's worth remaining in the losing trade given the time/opportunity costs.
Buying calls on a 3x levered ETF is inherently a short-term play given the leverage on leverage. An outright exit is almost inevitable.
The second issue, as mentioned before, is the underlying instability of 3x levered ETFs. We've seen too many get wiped out by crashes over the years. Small sizes are fine for a gamble, but allocating such large capital to an unstable product amplifies downside risk in a crash, making it impossible to rationalize holding.
Opportunities for these volatile pops will arise again. Let's learn from this experience.
With the speculation now unwound, the intense China uptrend is likely taking a breather. We should see a return to a more normal environment, with the ETF flows suggesting rangebound FXI between $31-$37 for now.
On Tuesday, institutions rolled their $138-$145 call spread higher, representing the two largest call opening flows.
Looking at the overall flow, Nvidia likely pushes above $130 next week as earnings season begins and optimism builds. However, the risk highlighted yesterday of large put buying in $STMicroelectronics (STM)$ bears watching for any potential semiconductor weakness in the coming days.
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