Bulls in the China Shop? Options Surge Before Big Events


Options traders are getting active in Chinese technology companies like Baidu before two potentially important events.

The first catalyst is at 8:30 a.m. ET tomorrow, when the U.S. Labor Department releases the consumer price index (CPI). It’s the first reading of inflation report for June and will influence when the Federal Reserve cuts interest rates. That could have a big impact on the U.S. dollar and foreign assets like Chinese stocks.

Second, officials could announce economic measures at their “third plenum” July 15-18. (It’s a meeting of the Central Committee of China’s Communist Party.) While there have been few clear indications of stimulus, the country’s leadership has been taking more pro-business steps since April.

Baidu (BIDU) was the most active name yesterday, according to TradeStation data. Heavy volume was detected in several call contracts expiring this month as the Beijing-based Internet stock had its biggest gain in over a year:

  • More than 19,000 July 100 calls changed hands. The initial blocks priced for $0.15 to $0.23 and premiums jumped past $2 as the shares advanced.
  • The July 110 calls saw volume of more than 14,000. They began the day trading for $0.04 and shot as high as $0.80.
  • The 12-July 94 calls traded more than 14,000 times, surging from $0.13 to $3.50.
  • There was also heavy turnover in the 12-July 95 calls, the 12-July 100 calls and the July 85 calls. Volume surpassed open interest across the board, which suggests new money was put to work.
Baidu (BIDU), daily chart, showing select indicators and events.

Calls fix the price where a security can be purchased. They can appreciate rapidly in value when shares rally but also become worthless when a stock fails to advance.

BIDU ended the session up 8.5 percent to $95.40. Yesterday’s activity pushed its total call volume past 250,000 contracts — the most since March 2021. Calls outnumbered puts by more than 7-to-1. Stock volume was also the highest in more than a year.

There was little apparent news to explain the bullish activity, however the company is developing robotaxis for the Chinese market. That could make it a potential AI name.

Alibaba, JD

Other prominent Chinese technology stocks experienced heavy call volume as well.

The list includes e-commerce giant Alibaba (BABA) and Pinduoduo (PDD), the parent of Temu. Online retailer JD.com (JD) and Bilibili (BILI), a digital media company, were also active. Volume generally focused on July expirations, which suggests traders expect near-term moves.

RadarScreen™ showing select data for stocks mentioned in this article. Notice above-average call volumes.

All the stocks rose at least 1 percent. Once again, there was little obvious news on any of them.

In conclusion, Chinese stocks have lagged for years. However recent months have seen officials make pro-business moves. In April they eased restrictions on the Hong Kong Stock Exchange and in May they announced plans to buy distressed real estate. Tuesday’s market activity suggests traders may expect more positive news in the coming weeks.

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