Trade Update: Closing FXI Aug Put Spread

by Dan June 25, 2018 3:40 pm • Trade Updates

On Friday June 15th I detailed a bearish strategy in the FXI, the etf that tracks large-cap Chinese stocks (read here: YUAN TRADE WAR?) suggesting…

looking at the FXI, the iShares Large Cap China etf, made up largely of SOEs, state-owned enterprises (aside from Tencent) and you see the stocks of a group of companies that might adversely be affected by an economic slowdown resulting from a trade war with the U.S


From where I sit, I suspect this tit for tat to rachet up this summer between the U.S. and China and I expect this to weigh on the near-term outlook for China’s economy and might be reflected in risk asset prices, most notably stocks…

Here was the trade idea and rationale:

TRADE IDEA: FXI ($46.80) BUY AUG 47 / 43 PUT SPREAD FOR $1.25

-Buy to open 1 Aug 47 put for 1.60

-Sell to open 1 Aug 43 Put at 35 cents

Rationale… this trade idea is already 20 cents in the money, and has a breakeven down 2.2% from the trading level. Risking 1 to make 2 seems like a pretty fair risk-reward given how close the breakeven is.

WIth the FXI down near the short strike of the put spread, having briefly broken $43 earlier, the spread is worth about $2.85 with the etf at $43.30. At this point, it does not make sense to risk 70% of the width of the spread to try for the remaining premium between now and August expiration if the stock, in fact, does go lower.

It makes sense to take the profit in such a short time and look for another short entry on a bounce.

Action: Sell to close FXI ($43.30) Aug 47 / 43 Put Spread at $2.85