Hong Kong Stocks Are Plummeting — How Can Options Be Used to Hedge?
Recently, Hong Kong stocks have ushered in a bull market, with new IPOs continuing. However, as the market cools down, Hong Kong stocks have been falling for several days. For investors who want to hedge their Hong Kong stock positions, at this time, useOptions instruments in the US stock market, to indirectly short Hong Kong stocks or hedge their related risks, is a flexible and efficient option.
U.S. stock trading targets that can be used to short Hong Kong stocks
$Hong Kong ETF-iShares MSCI (EWH) $(iShares MSCI Hong Kong ETF)Tracking the MSCI Hong Kong Index, the main constituent stocks are local real estate, financial and public utility companies in Hong Kong, which are suitable for shorting the local market in Hong Kong.
$China Large Cap ETF-iShares (FXI) $(iShares China Large-Cap ETF)Tracking the Hang Seng China Enterprises Index (commonly known as the H-share index), the constituent stocks are mainly Chinese state-owned enterprises and large financial and energy companies. It is a representative ETF of Hong Kong H-shares with good liquidity.
$China Overseas Internet ETF-KraneShares (KWEB) $(KraneShares CSI China Internet ETF)Covering Chinese Internet companies such as Tencent, Alibaba, Meituan, JD.com, Baidu, etc., listed in the United States and Hong Kong, they are popular targets for short-selling Hong Kong stocks.
$Triple Short FTSE China ETF-Direxion (YANG) $(Direxion FTSE China Bear 3x ETF)The reverse triple ETF that tracks the FTSE China 50 Index is volatile and suitable for short-term sharp drop expectations or leveraged speculative trading.
$Triple Long FTSE China ETF-Direxion (YINN) $(Direxion FTSE China Bull 3x ETF)It is a triple long version of the ETF. If you think that Hong Kong stocks will rebound strongly in the short term, you can use it to hedge your YANG position.
Specifically executable options strategies
Buy Put Option (Long Put)If you expect Hong Kong stocks or Chinese concept stocks to fall rapidly in the short term, you can directly buy put options such as FXI and KWEB. Example: Current FXI price is $27.5, buy Put with strike price of 27 expiring in two months, and premium is $1.2. The maximum loss is $1.2. As the price of FXI falls, the value of options rises, and the profit margin is large but the time value is lost quickly.
Bear Call Spread Bear Call SpreadIf you think that Hong Kong stocks will not rise sharply, or may even fall slightly, you can build a Bear Call Spread by selling a lower strike price Call and buying a higher strike price Call. Example: Sell KWEB's $30 Call and buy $32 Call at the same time to earn the premium spread. The maximum profit is premium revenue, and the maximum loss is the spread between the two strikes minus premium, which is suitable for the volatile and bearish market.
Buy an inverse ETF and sell a call option (Covered Call on YANG)You can directly buy YANG (3x short ETF) and then sell a call option (Covered Call) with a slightly higher strike price to obtain double returns. If YANG rises, you can win-win from underlying shares's profits and premium's profits; If YANG falls, premium can partially hedge losses. Note: YANG fluctuates greatly and is suitable for short-term operations.
Long-Term Put (LEAPS Put)If you expect Hong Kong stocks to gradually decline in the next 1 to 2 years, you can buy forward (such as January 2026) put options. Example: Buy FXI or KWEB's deep out-of-the-money LEAPS Put, which can significantly reduce costs and amplify profits in a long-term decline. It is suitable for hedging medium and long-term structural risks, such as the continuation of China's real estate debt crisis and the escalation of the Sino-US game.
Notes
Liquidity Preferences FXI vs. KWEB: The options market of these two ETFs is active, with small spreads and high trading volume, which is suitable for frequent position opening or position adjustment.
Inverse ETF strategy needs to control leverage risk: If YANG is 3 times reverse, it is suitable for short-term directional bets, but it is not suitable for long-term holding.
Pay attention to major event nodes: For example, the release of China's economic data, the policy direction of the two sessions, the Federal Reserve's interest rate meeting, and Sino-US diplomatic friction may have a systemic impact on Hong Kong stocks, and positions should be adjusted in advance.
Through ETF option tools in the U.S. stock market, overseas investors can flexibly hedge or actively short the Hong Kong stock market, avoid systemic risks, and even capture the profit opportunities brought about by the decline in the Chinese and Hong Kong stock markets. Compared with operating directly in the Hong Kong stock market, U.S. stock option tools are not only more efficient and have smoother channels, but also have obvious advantages in capital use efficiency and risk control.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
