Options traders have never been so pessimistic on China’s stock market, Bloomberg reported Monday.
They are betting the government’s renewed effort to prop up share prices is doomed to fail.
The cost of puts, or bearish contracts, on the China 50 exchange-traded fund surged to the highest level versus calls, or bullish ones, since they started trading in Shanghai six months ago.
This was despite government buying that drove China’s benchmark index to a 10 percent rally in the final two days of last week.
While policymakers are trying to bolster the market before President Xi Jinping presides over a World War II victory parade this week, bears argue that valuations are too high for the rally to last.
Chinese investors have about 5 trillion yuan (US$783 billion) of borrowed money riding on stocks, and many of them are looking for a chance to exit, Bank of America Corp said.
Puts that pay out on a 10 percent drop in the China 50 ETF cost 7 points more on Friday than calls betting on a 10 percent gain, according to implied volatility data on one-month contracts.
As recently as Aug. 24, the bullish contracts were more expensive.
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