Volatility Trends in China’s Market

Recent developments in China’s market have led to an unexpected surge in volatility and trading volumes, prompting significant market reactions. The Chinese government’s aggressive economic measures triggered a dramatic upshock in asset prices, with investors quickly adapting their strategies, as seen with prominent investors like David Tepper. This reaction is demonstrated by a deeply inverted term structure of volatility, where short expiration options feature the highest implied volatility—a rare phenomenon indicating heightened investor activity. The unusual situation is compounded by a notable skew towards call options, suggesting a strong demand for upward exposure, highlighting the unique dynamics currently influencing the FXI.