MARKET SNAPSHOT

🕒 Market Overview: Chinese stocks trading on U.S. exchanges face volatility amid ongoing U.S.-China trade tensions.

🔄 Sector Insight: Chinese equities currently trade at significantly lower P/E ratios than U.S. stocks, potentially offering better value.

💰 Today's Trade Idea: Bull Call Spread on FXI targets upside potential with defined risk as market forms higher lows.

MARKET BREAKDOWN

Macro Lens – Big Picture Market Forces

The ongoing trade war between the United States and China continues to create market uncertainty. Years of Chinese trade advantages followed by the Trump administration's aggressive tariffs have created significant friction between the world's two largest economies. While the U.S. has historically maintained an open market for Chinese companies, recent policy shifts have drastically changed the landscape with unprecedented tariffs, leading to Chinese retaliation and market instability.

Volatility indicators suggest traders remain cautious about resolution timelines, creating both risk and opportunity in the Chinese equity space.

Sector and Stock Watch – Identifying Key Movers

Chinese large-cap stocks have substantially underperformed the U.S. market over the past eighteen years. The FXI ETF, which tracks Chinese large-caps, reached its record high back in October 2007 and has failed to surpass that level since. However, technical indicators show promising signs with FXI establishing higher lows and higher highs since January 2024, suggesting a potential trend change.

While China's economic growth has been sluggish, affecting GDP numbers and creating headwinds for Chinese stocks, government stimulus measures have begun creating optimism for large-cap names. This presents a potential bullish signal for traders willing to look past immediate headlines.

Trading Strategy in Focus – How to Play the Market

Chinese stocks present compelling valuations compared to their U.S. counterparts. The SPY currently trades at a P/E ratio of 17.86, while FXI sits at just 10.62. This valuation gap creates an asymmetric risk-reward opportunity for traders willing to bet on trade tension resolution.

A potential trade deal between Presidents Trump and Xi could act as a powerful catalyst for Chinese stocks and particularly the FXI ETF. Vertical call spreads offer a defined-risk approach to capitalize on this potential upside while limiting exposure if negotiations deteriorate further.

SMART TRADE IDEA

Bull Call Spread on FXI

Trade Setup:

• Buy 32 Call / Sell 40 Call, December 19, 2025, expiration.

Entry Price and Risk Reward:

• Credit: $3.31 per spread

• Max Profit: $4.69

• Breakeven: $35.31

Management Plan:

• Exit at 50 percent loss, roll up if price reaches $38 per share.

Open This Trade Instantly with Trade Link on Tradier Brokerage!

NOTE: Remember, options trading involves substantial risk and is not suitable for all investors. Consider your investment objectives, financial resources, and experience level before implementing this or any options strategy.

DISCLOSURE: Trade recommendations may have changed since publication. Evaluate current market prices and risk/reward before acting. Trading involves significant risk and is not suitable for everyone. This is not personalized investment advice. Past performance doesn't guarantee future results. Publisher and contributors may hold positions in recommended securities. Readers assume full responsibility for their trading decisions. Consult a financial professional before investing.

The twenty-year monthly chart shows that Chinese large-cap stocks and the FXI ETF product reached their record high in October 2007 and have unperformed the SPY over the past eighteen years.

A trade deal between President Trump and President Xi that offers mutual benefits could lift Chinese stocks and the FXI ETF.

Chinese government stimulus has caused some optimism for large-cap stocks, creating higher lows and higher highs in the FXI ETF since the January 2024 low.

The FXI is a diversified large-cap Chinese stocks ETF product- A bull spread offers value if there is a compromise; the top holdings of the FXI ETF include:

At $33.79 per share, FXI had over $5.75 billion in assets under management and trades over 67.6 million shares daily, making it a highly liquid ETF product. The 0.74% management fee for such a liquid ETF is high, but the $0.54 dividend translates to a 1.6% yield.

An optimistic outcome for the current U.S.-Chinese trade standoff and weakness in China’s economy could lead to a recovery in the inexpensive FXI ETF product.

With FXI trading at the $33.79 per share level, the December 19, 2025, $32-$40 vertical bull call spread was trading at $3.31 or $331 per spread.

The maximum risk is $331 per spread at below $32 on the December 19, 2025, expiration, while the maximum profit is $469 per spread on December 19, 2025, above $40 per share. The risk-reward dynamic is 1-1.4 at the current spread price.

The monthly chart shows that FXI has made higher lows and higher highs since January 2024. While the first technical resistance level is at the March 2025 $38.73 high, a break above that level could be a gateway for a challenge of the February 2021 $54.52 high.

The long call spread is a position that will likely benefit from a U.S.-China trade deal over the coming weeks and months.

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