Earning $138 million a day! Leveraged bets on China's ETFs are making a fortune on Wall Street

This Monday, Chinese concept stocks surged against the market trend, with the Nasdaq Golden Dragon China Index rising more than 10% at one point. Recently, overseas investors who have heavily leveraged their bets on Chinese stocks have made significant profits.

According to Bloomberg, on Monday, traders who bought small leveraged ETFs tracking Chinese indices over the past week saw paper profits exceeding $130 million. Specifically, these traders mainly focused on purchasing options for two ETFs: the 2x Long CSI 300 ETF - Direxion (ticker: CHAU) and the 3x Long FTSE China ETF - Direxion (ticker: YINN).

The total market capitalization of these two ETFs is only about $2.5 billion, far less than the nearly $8 billion market cap of more common Chinese ETFs like iShares China Large Cap (FXI). However, prior media reports indicated that CHAU and YINN had recently seen large bullish bets.

Wallstreetcn mentioned last week that on December 2nd, on that single day, traders purchased over 200,000 call options for CHAU with a strike price of $15 expiring in May next year, with a purchase price of about $2.64 per share, totaling over $55 million. Additionally, from November 29th until December 6th, traders collectively bought nearly 180,000 call options for YINN with a strike price of $27 expiring in January 2026, with an average purchase price of about $9.35 per share.

On Monday, YINN and CHAU rose over 20% and 10%, respectively. Bloomberg reported that, according to calculations, during the early trading hours of U.S. stocks on Monday, the per-share value of the aforementioned YINN and CHAU call options rose to $4.02 and $15.40, respectively, resulting in a paper profit of about $138 million for these contract buyers.

CHAU's options typically see low trading volume, with daily trades only in the hundreds to thousands, but trading volume has significantly increased since early October. Before last Monday, CHAU's 20-day average options trading rate was only 6,150 contracts, while YINN was about 34,000 contracts. Large single-day trades like last Monday are very rare, thus attracting market attention.

China Securities Journal reported that in recent months, foreign capital's allocation to Chinese stock ETFs has fluctuated significantly. From the end of September to October this year, there was a substantial inflow of foreign capital into Chinese stock ETFs, but outflows occurred in November. Some analysts believe that the sudden surge of bullish options for Chinese stock ETFs may indicate a renewed optimism among foreign investors towards Chinese assets.

Chinese concept stocks on Monday benefited from signals released by the latest meeting of China's leadership, which made investors more optimistic about the prospects for future policy support in China. According to Xinhua News Agency, the Political Bureau of the Central Committee of the Communist Party of China held a meeting on the 9th to analyze and study economic work for 2025, discuss and deploy the construction of a clean and honest government and anti-corruption work, and propose to implement a more proactive fiscal policy and moderately loose monetary policy, strengthening extraordinary counter-cyclical adjustmentsChina Securities Journal quoted industry insiders commenting on the recent meeting of the Political Bureau of the Central Committee of the Communist Party of China, stating that under the guidance of a "more proactive" fiscal policy, the potential for increased central deficit space is worth looking forward to; under the guidance of "moderate easing," monetary policy may focus more on internal balance, with expectations for reserve requirement ratio cuts and interest rate reductions.

Mingming, chief economist at CITIC Securities, believes that this Political Bureau meeting has for the first time proposed "stabilizing the real estate and stock markets," making the stability of the stock market one of the key focuses of economic work for next year. For the stock market, the Political Bureau meeting has basically set a positive tone for next year's policies, and market risk appetite is expected to remain high, with a clear trend of economic recovery. It is anticipated that driven by both policy expectations and economic trends, the stock market is likely to continue its upward trend with fluctuations.

Neo Wang, a strategist at Evercore ISI, believes that this Political Bureau meeting has unprecedentedly provided "supportive guidance for the economy in 2025," reigniting investor enthusiasm for Chinese assets. It is expected that the National People's Congress meeting in early March next year will announce strong fiscal support measures, which may include a higher deficit ratio, larger quotas for local government special bonds, and the issuance of at least 1 trillion yuan in ultra-long-term special government bonds