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Fire Sale on Chinese Internet Stocks

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Chinese internet stocks took another hammering for the second straight day Wednesday as one of the nation’s largest companies, Tencent Holdings (TCEHY), reported quarterly results that fell short in some key areas.

Tencent closed down 6.7% today and many other Chinese stocks fell as a result.

For those that have been waiting for a chance to buy in to some of these names, the latest fall may provide a good opportunity.

BABA is down 20% from it’s 52 week high, JD is down 36%, IQ down 50%, MOMO down 31% and BIDU down 25%.

When stocks sell off like this, volatility also shoots higher which means juicy option premiums for option sellers.

Selling cash secured puts is a great way to gain exposure to a stock and potentially take ownership at a lower price.

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Taking IQ as an example, traders could sell a $25 October 19th put for $2.10 while the stock is trading at $26.23.

Here’s how the trade looks:

If the put expires worthless, that results in a 48% p.a. return for the trader.

Another way to profit from high option premium is via an Iron Condor, you can learn more about that strategy here.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Options Trading 101 - The Ultimate Beginners Guide To Options

Download The 12,000 Word Guide

Get It Now