The rush into Chinese equities has propelled the ๐๐ฎ๐ป๐ด ๐ฆ๐ฒ๐ป๐ด ๐๐ป๐ฑ๐ฒ๐ ๐ฏ๐ +๐ฏ๐ฑ% over the last month!
๐ง๐ต๐ฎ๐ ๐ฟ๐๐๐ต ๐บ๐ฎ๐ป๐ถ๐ณ๐ฒ๐๐๐ ๐ถ๐๐๐ฒ๐น๐ณ ๐ฎ๐น๐๐ผ ๐ถ๐ป ๐๐ต๐ฒ ๐ฑ๐ฒ๐ฟ๐ถ๐๐ฎ๐๐ถ๐๐ฒ๐ ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐ where investors are bidding up the upside calls, leading to the very unusual situation where the 3-month 110% calls are now priced with an implied vol 3 points higher than the 90% put. The skew is negative!
That situation is rare: usually investors tend to overpay for the puts rather than for the calls. In other words, today, investors that are willing to give away Chinese upside will be highly compensated for it.
Good time for call overwriting or 1×2 call spread.
In exotic options space: Up and Out Calls are now particularly cheap versus Vanilla calls.
That’s a free trade idea!
