Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / The China Tech Rotation Day Traders Should Watch Now
Transcript
- Lucas: The Russell 2000 is up three-point-four percent in the last five sessions — that's more than double the S&P 500's gain — and the VIX has dropped to sixteen-seventy. So the narrative is U.S. small caps finally catching a bid. But I want to look at something else that's happening under the surface. Luna: You're going to say Chinese ADRs, aren't you? Lucas: Exactly. Because while everyone's watching the Russell, there's a quieter rotation happening in New York-listed Chinese tech stocks. Alibaba, PDD, Bilibili — they've all seen unusual call volume this week, and the price action is decoupling from the broader NASDAQ. Luna: Decoupling how? The NASDAQ is up one percent over five days. Are these ADRs outperforming? Lucas: Significantly. Alibaba's up about four and a half percent in the same window. PDD is up closer to six. And Bilibili, which is more volatile, is up nearly eight. That's not just beta — that's a specific appetite for China tech exposure right now. Luna: And this is happening against the backdrop of APEC headlines that suggest the U.S. and China remain far apart on trade. So the rationale isn't 'trade deal optimism.' What's driving it? Lucas: Two things. First, the valuation gap. Chinese ADRs have been hammered for three years. Alibaba trades at a price to earnings ratio of roughly eleven. PDD is around nine. Compare that to the S&P 500 at twenty-two. For growth-oriented traders, that's a deep value play if you believe the regulatory environment has stabilized. Luna: But 'stabilized' is a strong word. The regulatory risk hasn't gone away — it's just less acute than 2022. Lucas: Right. And that's the second driver: options flow. I was scanning the flow on Friday and saw a block of ten thousand Alibaba calls at the ninety-five strike for June expiration. That's not a retail trade. That's institutional positioning for a move higher, presumably on the assumption that the worst of the geopolitical noise is priced in. Luna: Is that the same thesis that's pushing the Russell higher? A rotation out of mega-cap tech into smaller, cheaper names? Lucas: Partly. But the Russell rally is more about domestic rate expectations — the ten-year Treasury yield has pulled back, which benefits small caps. The China trade is a distinct bet: it's 'I want emerging market exposure but I want it in dollars, with U.S. settlement and U.S. regulation.' The ADR structure gives you that. Luna: So you're arguing this isn't a squeeze. It's a deliberate rotation. Lucas: I think so. Short interest in PDD is about six percent of float. Bilibili is higher, around twelve. So there's squeeze potential, but the volume patterns suggest fresh buying, not just covering. Look at the vix vvix spread: the VIX is down over six percent, the VVIX is flat. That's a volatility structure that rewards risk-taking, not hedging. Luna: So the VIX is saying 'fear is low,' and the VVIX is saying 'volatility of volatility isn't spiking.' That's a green light for put sellers and call buyers. Lucas: Exactly. When the VIX drops and the VVIX doesn't follow, it's usually a signal that the market expects a calm grind higher, not a crash. That's an ideal environment for a rotation into beaten-down names like Chinese tech. Luna: But if you're a day trader, how do you actually play this? Alibaba doesn't move like a meme stock. It's a hundred billion dollar company. Lucas: You don't swing-trade it intraday on five-minute candles. But you can use the options flow as a signal. If you see a big block of calls at a strike that's out of the money by five to ten percent, that's a bet on momentum continuing. You can leg into a long position on the underlying and hedge with a short-dated put. Or you can trade the ETF: the KraneShares CSI China Internet ETF, ticker K-W-E-B, tracks these names. Luna: And the risk? The APEC headlines suggest the U.S. and China are still far apart. One hawkish statement from the White House and these ADRs could gap down five percent. Lucas: That's the trade-off. But the options market is pricing that in. The implied volatility on Alibaba is around thirty-two percent, which is elevated but not panic-level. The market is saying 'we know there's risk, but it's manageable.' And the VIX at sixteen-seventy supports that. Luna: I want to step back for a second. You mentioned that the money shows like this one are possible because we don't run ads. Lucas: That's right. We deliberately keep this show ad-free. No commercials, no sponsored segments, no 'this episode is brought to you by' anything. It's just the signal. Luna: And if that matters to you — if you like not having to skip ads or hear pitches for things you don't need — the simplest way to support that choice is at buy me a coffee dot com slash fexingo. Lucas: No pressure. Just if you find value in the conversation and want to keep it independent, that link is there. Anyway, back to the China trade. Lucas: I want to flag one more name: Bilibili. It's a streaming and gaming platform, often called China's YouTube. It's not profitable on a GAAP basis, but it's cash-flow positive. The options flow there has been heavily skewed to calls this week. Luna: That's a higher-beta play. Bilibili has a beta of about one-point-five. If Alibaba is the anchor, Bilibili is the speculation. Lucas: Exactly. And the volume on Bilibili options this week was about double the twenty-day average. That's unusual. The open interest at the seventeen-dollar strike for June is enormous. Someone is betting on a breakout. Luna: Do you think this rotation has legs? Or is it a one-week phenomenon tied to the Russell rally? Luna: What's your catalyst to watch for the next few sessions? Lucas: The ten-year yield. If it continues to fall, that's a tailwind for both the Russell and Chinese ADRs. If it reverses and spikes, the rotation stalls. Also watch the VIX: if it drops below sixteen, that's a strong risk-on signal. But if it holds above seventeen, the market is still nervous. Luna: And the APEC headlines? The U.S. and China remain far apart, according to the CNBC piece from yesterday. Lucas: That's actually a positive for the trade in a weird way. If there were a breakthrough, the ADRs would gap up hard, but you'd have a 'sell the news' reaction. The fact that there's no deal means the uncertainty persists, and that's what keeps the valuation gap wide. Traders are buying the stalemate. Luna: That's a counterintuitive take. I like it. So the play is: watch the options flow on Alibaba, PDD, and Bilibili. If the call volume continues, it confirms the rotation. If it dries up, take profits. Lucas: Exactly. And use the VIX as a risk gauge. Right now it's at sixteen-seventy, down six percent in a week. That's a green light. If it starts climbing, hedge or reduce size. Luna: One more thing: the Kevin Warsh Fed plumbing article. Could a change in how the Fed operates affect this trade? Lucas: It could, but it's more of a long-term structural shift. For day traders, the immediate impact is minimal. The plumbing changes affect repo markets and bank reserves — that's not what's driving Chinese ADRs this week. Luna: So we focus on the options flow, the VIX, and the yield. That's the triangle. Lucas: That's the triangle. And if you're trading this, keep position sizes modest. These ADRs can gap five percent on a headline. But the risk-reward, given the valuation and the options structure, is skewed to the upside. Luna: Alright, Lucas. Good framework. Let's see if the rotation holds next week. Lucas: Will do. We'll revisit it.