In the past week, traders have accumulated a large number of call options in the small leveraged exchange-traded funds (etf) tracking the china index, and their paper profits have exceeded $0.13 billion due to a surge in stock prices after china signaled strengthened economic support for next year.

The main etfs for buying options are the 2x long 300etf-Direxion (trading code: CHAU) and the 3x long FTSE china etf-Direxion (code: YINN). The total market cap of these two funds is approximately $2.5 billion, lagging behind larger funds like iShares china large cap (code FXI), which has a market cap close to $8 billion.

From November 29 to last Friday, traders collectively bought nearly 0.18 million YINN call options with a strike price of $27 expiring in January 2026, at an average purchase price of about $9.35 per share. On December 2, traders bought approximately 0.21 million CHAU call options with a strike price of $15 expiring in May next year, at a purchase price of about $2.64 per share, investing more than $55 million.

According to Bloomberg's calculations, the prices of these two contracts were $15.40 and $4.02, respectively, in Monday's morning session, and buyers obtained about $0.138 billion in paper profits.

These trades do not seem to be part of any spread and were not immediately hedged with stocks. Since the trades, the open interest of these two contracts has remained stable or increased, indicating that positions are being held.

After the central political bureau meeting pledged to implement a "moderately loose" monetary policy in 2025, the china stock market surged in asia trading, and american depositary receipts and etfs followed closely. On Monday, CHAU soared 15% and YINN jumped 27%.

Neo Wang, a strategist at evercore ISI, said that china has put forward unprecedented "supportive guidance for the economy in 2025," reigniting market enthusiasm for china assets. Wang said it is now expected that the National People's Congress meeting scheduled for early March next year will announce strong fiscal support, "which may include increasing the deficit ratio, expanding the quota for local government special bonds, and at least 1 trillion yuan in ultra-long-term special sovereign bonds."

For small etfs, the trading scale and the expiration dates of the options are unusual. Before December 2, CHAU's 20-day average options trading volume was only 6,150 contracts, while YINN had about 34,000 contracts. Although speculative bets are usually made on shorter-term contracts, buying options with longer expiration dates may indicate a bet that stimulus policies will continue until 2025.

Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, said: "By purchasing leveraged etfs, you can achieve higher risk and higher returns, leading to greater gains."

He said: "Surprisingly, after significant volatility, there has only been limited profit-taking today (Monday), which indicates that investors are anticipating China to announce more positive stimulus policies. With a big move, people are expecting more."