Unusual Options Activity: Has This Country Hit Rock Bottom?

Welcome to another round of Unusual Options Activity!

Most of us have wrapped up the holidays, but the Chinese New Year doesn’t kick off until February 1…

And one trader is betting big on the year of the Tiger, with over $4 million on the line.

Chinese stocks weren’t even on my radar heading into 2022. They’ve had all sorts of drama with political and regulatory issues, and it’s hurt their stock market. Like your managing editor pointed out a couple weeks back, the Chinese tech sector is down over 40% from the February 2021 highs.

Last year the large-cap index, iShares China Large-Cap ETF (FXI), basically was the opposite of the S&P 500 here in the states. While the largest 500 stocks listed in the U.S. headed 27% higher and finished at all-time highs, FXI lost over 20% in 2021.

It’s kind of crazy.

But when you look at the chart, it was predictable…

On the FXI chart, there’s a clear long-term resistance level around $54 that was hit early in 2021, and a rising support line trending right where the index is currently trading.

Take a look:

(Click here to view larger image.)

Now, most options traders don’t care about decades-old trend lines.

But it looks like this one did.

Because they loaded up on the $40 strike call options set to expire on May 20, 2022, over four months away.

With over 40,000 contracts traded for just $1 per share, the total at risk capital for the trade was $4.07 million.

And why not?

My Profit Radar Likes This UOA

The longer a trend line has been in place, the more likely it is to hold up one more time. At some point, this support or resistance is going to break. It won’t go on forever.

But there’s at least one unusual options trader out there betting on it to hold this time, and send the index soaring from here.

Even on a short-term view, here on the daily chart, I like that the Profit Radar is showing the index in the improving quadrant, while it holds this support.

As it moves into the leading quadrant in the coming days, I’d look for that to help the index climb above $38 and head toward $40 on a short-term basis.

(Click here to view larger image.)

That’s all for our unusual options activity today.

And I don’t know if you caught my article last Thursday, talking about my Bank It or Tank It series, but I’m going to start adding unusual options activity on stocks you all want me to look at to it.

These may not be standout trades, or they could be. That will just depend on how it plays out. But we’ll take a look at the options sentiment as a new element in my overall Bank It or Tank It analysis.

Stay tuned this Thursday for the complete breakdown. If you have any stocks you want me to feature, you can send them in at TrueOptions@BanyanHill.com.

Regards,

Chad Shoop, CMT
Editor, Quick Hit Profits

Chart of the Day:
Bitcoin, Through a Different Lens

(Click here to view larger image.)

Lately I’ve been tracking certain charts with a totally different method, by using the Heikin Ashi candles.

Rather than plotting the price of an asset at a point in time, Heikin Ashi candles take the average price of an asset over a given period and plot that instead.

The longer time frames on these charts are good at spotting trend changes. And there are a few simple rules to follow to know what kind of trend we’re in on a Heikin Ashi chart.

1. Green candles with long upper wicks and no lower wicks = strong uptrend.
2. Red candles with long lower wicks and no upper wicks = strong downtrend.
3. Green or red candle with long lower and upper wicks = a trend change, usually opposite the preceding trend.

These rules aren’t foolproof, of course — nothing in the market is. But they are pretty good at spotting longer-term trends in bitcoin. With this in mind, let’s take a look at the bitcoin chart.

I plotted each bitcoin uptrend and downtrend over the past year with corresponding red and green lines, along with all of the trend-change candles with long upper and lower wicks with pink circles.

Following this chart, you definitely aren’t selling the top and buying the bottom every time (show me a chart that shows that, and I’ll never work again). But it does help you capture a lot of the bitcoin upside and avoid a lot of the downside.

These candles seem to work best on the longer time frames, waiting for the candle after a trend-change candle to confirm the new direction.

This also tells us that bitcoin is, for now, in a strong downtrend. And that likely won’t stop until we have another one of those contentious trend-change candles get confirmed by a new uptrend candle.

I’ll keep an eye on the Heikin Ashi chart for bitcoin, and let you know if I think the trend is about to change.

Regards,

Mike Merson
Managing Editor, True Options Masters