China to Sell Off?

I am seeing some huge options volume in the ProShares UltraShort FTSE/Xinhua China 25 ETF (NYSE: FXP) this morning that may suggest the country’s market is at a top. The May $7 calls have been purchased all morning long in medium sized blocks for $0.65-0.70. The vast majority of trades have been purchases on the offer.

The ProShares UltraShort FTSE/Xinhua China 25 ETF is currently trading at a support level after falling precipitously over the last three months. It appears that some traders believe that this level will hold and that the Xinhua 25 will begin selling off here. Implied vol is carrying an 11 point premium to historical vol in the ETF; the $7 call is carrying an even larger premium, suggesting that whomever purchased the options is willing to pay up significantly for the potential of a large move.

The ProShares UltraShort FTSE/Xinhua China 25 ETF is a double inverse ETF that rises in value 2% when the index it tracks falls 1%.