Published: Sunday, January 19, 2025 · 10:31 AM | Updated: Sunday, January 19, 2025 · 10:31 AM
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Investors are heavily purchasing call options for the iShares China Large-Cap ETF (FXI, Financial) set to expire soon, acquiring contracts equivalent to 4 million shares. This surge in demand led to a significant rise in related ETFs, marking their largest single-day gain in over a month.
Optimism was fueled by a recent phone call between Chinese President Xi Jinping and U.S. President-elect Donald Trump, where both leaders expressed a desire for a positive start to U.S.-China relations. As a result, FXI saw a peak increase of 2.9%, while the KraneShares CSI China Internet ETF (KWEB) climbed 4.4%.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, noted the substantial purchase of FXI call options with strike prices between $31 and $32. There was also additional buying interest for FXI call options expiring in February, alongside increased demand for KWEB call options.
This buying activity has driven FXI’s one-month implied volatility to its highest level since mid-December, widening the premium of call options over put options, indicating a higher volatility in call options compared to put options.
However, analysts caution that if underlying indices fail to rebound as expected, investors may quickly sell off these call options, a pattern observed in previous months. For example, in December, traders accumulated significant call options on Chinese stock ETFs, only to close them at a loss of around $100 million.
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