Chinese stocks are booming today following hints at further monetary easing from its central bank. The world’s most popular China-based ETF, iShares China Large-Cap ETF (NYSEARCA:FXI), is up more than 3% and staging a significant breakout.
Though most other markets are galloping higher today, China clearly leads the pack.
Today’s jump lifted FXI above a resistance zone it’s been wrestling with for all of 2015. The $44 level, which has heretofore proved impenetrable, is no longer a concern. With resistance now in the rear-view mirror, the FXI ETF is well-positioned to reclaim lost ground and perhaps make a go at its post-2008 recovery highs near $47.
As shown in the FXI weekly chart, its trend remains firmly higher and today’s breakout may well signal the beginning of its next advance. Little overhead supply exists between here and $47, which should aid in the bulls’ attempts at building on today’s victory.
Click to Enlarge
Play the Chinese Stock Boom With FXI Call Spreads
Traders looking to capitalize on continued strength out of Chinese stocks could use options on FXI. Given the popularity of the FXI ETF — it trades north of 15 million shares a day on average — its options are plenty liquid.
Those looking to score bigger gains on further upside in FXI could use a bull call spread. In selecting which expiration to use, I suggest July, which offers plenty of time for FXI to rise toward our max profit zone.
Buy the July $44/$47 call spread for $1.17 or better. Consider it a bet that FXI is able to rise above $47 by July expiration. If it does, you could capture the max reward of $1.83, an impressive return of 156%.
The max risk is limited to the initial $1.17 debit and will be lost if FXI falls back below $44 by expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
