How to Make 19,267% in China and Lose It All in 24 Hours

(Bloomberg) -- Even by the boom-bust standards of China, the moves are incredible: gains as large as 19,267 percent in one trading session, a near-complete wipeout in the next.

Welcome to the country’s options market, where outsized swings are par for the course and trading has never been more feverish. As volatility in Chinese stocks soars, some brave speculators are using options to magnify their bets.

How to Make 19,267% in China and Lose It All in 24 Hours

Trading in options on the Shanghai-listed China 50 exchange-traded fund soared to an all-time high on Monday as the nation’s stock market posted its biggest single-day gain since August 2015. Among the most active contracts was a call option expiring on Wednesday with a strike price of 2.8 yuan. The option soared 194-fold on Monday as a 7.6 percent jump in the ETF increased the odds of the derivative expiring in the money.

By the end of Tuesday, a 3.1 percent slump in the ETF had all but wiped out the option’s gain. It sank to zero on Wednesday as the ETF closed at 2.736 yuan, just below the option’s strike price.

While there’s nothing unique to China about options experiencing huge swings when their underlying assets turn volatile close to expiry, recent moves in the country’s stock market stand out. Volatility in China’s benchmark equity index over the past 10 days has soared to the highest level among major markets globally, with price swings about five times bigger than those of the S&P 500 Index. China’s options traders will need a strong stomach.

©2019 Bloomberg L.P.