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Market stabilization and a rate cut in China

September 15, 2022

Markets stabilized yesterday and paused ahead of expiration tomorrow. The SPX settled 0.34% higher, the NDX 0.84% higher and the DJIA 0.1% higher.

Implied volatilities dropped slightly with 30d losing 0.2% over the session and flows remained elevated with more than 2.6 million contracts trading across calls and puts for the SPX.

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Chinese growth is amongst the key themes being discussed in the market at the moment as the country continues to implement very strict anti-COVID policies and remains under pressure from the real estate sector. Media reported yesterday that Chinese banks cut their deposit rates for the first time since 2015 (FT).

Looking at FXI, a Chinese ETF with Net assets around $5bln, it has lost around 36% of its value over the past 5 years.

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Implied volatility in the name has been drifting higher recently although it has been constrained by realized volatility which has been under pressure currently slightly above 30%.

Ivolatility spot price chart Ivolatility spot price chart

Looking at open interest, it has increased over the past few months, mostly driven by the call side.

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Using the RT Spread Scanner, we can search for the most attractive bull vertical spreads and bear vertical spreads from a risk/reward perspective.

The system suggests looking at the following on the upside:

Ivolatility spot price chart

The Feb’23 31/36 bull vertical spreads screen as being the most attractive from a risk/reward perspective with a position cost of $101 and a potential 2STD profit of $399 giving it a R/R of 25%.

For bearish plays, the system returns the following possibilities for bear vertical spreads:

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The most attractive alternative is to consider the Feb’23 25/18 bear vertical spread for a cost of $95 and a potential 2STD profit of $605 offering a R/R of 15.7%.

Disclaimer - This information is provided for general information and marketing purposes only. The content of the presentation does not constitute investment advice or a recommendation. IVolatility.com and its partners do not guarantee that this information is error free. The data shown in this presentation are not necessarily real time data. IVolatility.com and its partners will not be liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from the use or reliance on the information. When trading, you should consider whether you can afford to take the high risk of losing your money. You should not make decisions that are only based on the information provided in this video. Please be aware that information and research based on historical data or performance do not guarantee future performance or results. Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.
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