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Today, I am recommending a bearish trade on the iShares China Large-Cap ETF (NYSE:FXI), a fund that tracks the results of an index made up of large-cap Chinese equities traded on the Hong Kong Stock Exchange.
We are still in the very volatile month of October, and with the mid-term elections coming up in the United States at the start of November, that seems to have intensified the atmosphere.
The stock market hates the unknown, and right now the biggest unknown factor is how the elections will impact the economy and the stock market. I certainly don’t know what’s going to happen in Washington, D.C., but it does look like traders are taking a more risk-off stance ahead of the mid-terms.
Meanwhile, China is still playing tough on trade, although there are reports that President Trump and Chinese leader Xi Jinping are scheduled to meet in November. That could lead to some kind of resolution, but Trump’s top trade advisor, Peter Navarro, is unlikely to back down either.
Trump also announced that the United States to back out of the Universal Postal Union no later than Jan. 1st, 2020. Though the treaty itself is between 192 countries, this is another move targeting China, as the move will make sending small packages from China to the U.S. through the postal system more expensive.
Officially, it will take one year to back out of the agreement. Postal rates could be renegotiated during that time, but at the moment, it seems to be another sign of increasing tension between the U.S. and China.
If the two countries can’t reach some sort of agreement after next month’s meeting, I do not think the market would take that well.
The Chinese market has been crashing, though it is rebounding nearly 3% this morning. I don’t think the selling is over at this point, though, so this gives us a good chance to enter these FXI put options at cheaper prices.
Buy to open the iShares China Large-Cap ETF (FXI) Dec 38 Puts (FXI181221P00038000) at $1.60 or lower.
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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.
