No Fear in China Options as Prices Drop
By Jeff Kearns and Lynn Thomasson - Jul 27, 2011
Traders betting on gains in China’s biggest companies are pushing options prices to the most bullish level in almost two years on speculation higher interest rates won’t curb the world’s second-largest economy.
The premium investors pay for puts to sell the iShares FTSE China 25 Index versus calls to buy has tumbled to 15 percent from 31 percent on June 22, according to data on three-month options compiled by Bloomberg, and fell as low as 13 percent this week. That compares with the average of 20 percent since the start of 2005 for the U.S.-traded fund tracking Chinese companies listed in Hong Kong.
“It’s almost like there’s no fear in China,” Jonathan Masse, a money manager at Walnut Creek, California-based Baochuan Capital Management LLC, which invests in Chinese stocks and options, said in an interview. “That’s where the world’s growth is coming from. People are more confident, so there’s less need for them to protect themselves from downside.”
China’s economy may lure investors because it is forecast to grow twice as fast as the entire world this year, said Uri Landesman of New York-based hedge fund Platinum Partners LLP. The country may expand 9.4 percent, the median economist estimate compiled by Bloomberg, compared with the International Monetary Fund’s projection for 4.3 percent global growth as Europe and the U.S. try to reduce budget deficits.
Calls to buy companies in the world’s fastest-growing major economy are luring buyers after stock valuations tumbled and speculation increased that inflation is peaking. Volume for bullish contracts on the iShares FTSE China 25 has jumped 26 percent to 38,181 contracts since June 17, based on the average from the past 30 days, according to data compiled by Bloomberg.
bloomberg.com |
