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China's Great Wall Of Worry - Goldman Warns China Options Signal Caution Ahead

Tyler Durden's picture




 

Via Goldman Sachs,

China has been the epicenter of recent market concerns as global markets focus on China's growth trajectory. Equity markets have been hit hard. The Shanghai Composite is down -43% since its peak on June 12th; with -21% of that down-move coming over the last five trading days. HSCEI is down -32% since June 12th, -12% over the past week. On August 25th the PBOC announced a series of moves including lowering the benchmark lending and deposit rate by 25 bps and the reserve requirement ratio by 50 bps.

What is the options market telling us? HSCEI implied volatility > 40, term structure inversion and high skew, all signal caution.

HSCEI: 1m implieds 43, term structure sharply inverted. HSCEI 1m implied volatility jumped 16 points over the last week and as of Tuesday August 25 market close stood at 43, its highest level since Aug-11. A similar story for FXI, where 1m implieds were up 21 points in a week, peaked at 49, and then dropped to 45 after the PBOC announcement and subsequent FXI rally. The HSCEI and FXI term structures are both sharply inverted, continuing to signal caution.

Skew spiked: Earlier in the year, as the rally in Chinese equities was in full force, higher demand for upside calls rather than downside put hedges led to a rarity in the options market. HSCEI, HSI, and FXI were the only major global indices with negative skew. Since mid-April, skew on these indices has done a 180 degree turn, and after a sharp spike, is now positive and fast approaching highs last seen in 2011-2012.

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Trade accordingly...

 

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Wed, 08/26/2015 - 20:54 | 6475730 CHC
CHC's picture

I may be the odd man out but seems to me everyone - or a WHOLE LOT of people - want to point all fingers at China for what's going wrong in the markets today.  Maybe it wouldn't hurt if we looked inward for a bit - I can see a whole lot wrong with our OWN system that is causing a whole lot of problems.

Wed, 08/26/2015 - 20:56 | 6475740 VATICANT
VATICANT's picture

Then where would America get its narrative for WWIII..

Wed, 08/26/2015 - 21:26 | 6475848 Seek_Truth
Seek_Truth's picture

WW3 will be between USA, UK, and their alles, and Iran and its allies. China will align with Iran, but won't be the primary target.

Spoiler: Iran will win WW3.

Wed, 08/26/2015 - 21:50 | 6475948 VATICANT
VATICANT's picture

China, Russia, Iran **

All nations will lose; satanists will "win"

Wed, 08/26/2015 - 23:51 | 6476226 Redneck Hippy
Redneck Hippy's picture

On the other hand, who needs Goldman or the options term structure to know that China is imploding?

Seems like a 21st century economy of China's size really can't be run from a back-office in Communist party headquarters.

Thu, 08/27/2015 - 03:51 | 6476493 Perimetr
Perimetr's picture

Hybrid WAR has begun in earnest with China

Langley is now busy blowing up industrial centers

as well as bringing down the markets

China is responding

Thu, 08/27/2015 - 05:01 | 6476541 EurGold
EurGold's picture

1oz Silver Australian Kookaburra Coin just €17.21 @ EurGold

 

 

https://www.eurgold.eu/silver/kookaburra-1oz-silver-1-dollar-legal-tende...

Thu, 08/27/2015 - 05:14 | 6476546 Tall Tom
Tall Tom's picture

Stop spamming

Wed, 08/26/2015 - 20:55 | 6475736 VATICANT
VATICANT's picture

CRASH AND BURN

Wed, 08/26/2015 - 20:55 | 6475737 Row Well Number 41
Row Well Number 41's picture

Horse sense is the thing a horse has which keeps it from betting on people.
    -- W. C. Fields

#41

Wed, 08/26/2015 - 21:11 | 6475788 q99x2
q99x2's picture

Information from criminals.

Wed, 08/26/2015 - 21:22 | 6475832 ebworthen
ebworthen's picture

What?  The paper Ponzi pyramid of propped procine promises is perched precariously?

I'm shocked I tell you!  Shocked!

Wed, 08/26/2015 - 22:19 | 6476046 Proofreder
Proofreder's picture

Even moar shocking ...

'twas Percival Patterson's pet pig Porky on a Sunday afternoon in Pleasant Valley!

Agast

Wed, 08/26/2015 - 21:54 | 6475967 10mm
10mm's picture

China to US. You worry about the speck in our eye,while you have a plank in your eye.

Wed, 08/26/2015 - 22:20 | 6476055 Otrader
Otrader's picture

oh man, I forgot what I was gonna say...oh yeah, I remember...FUCK YOU GOLDMAN!

Wed, 08/26/2015 - 22:21 | 6476060 FedFunnyMoney
FedFunnyMoney's picture

Goldman Sucks has a fetish for Chinese muppets. More raping to come.

Thu, 08/27/2015 - 04:48 | 6476522 crude4abc
crude4abc's picture

BULL EURO...

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