The Power Gauge just turned “very bullish” on Chinese Internet companies…
Specifically, last Thursday, our research led to a buying opportunity in the KraneShares CSI China Internet Fund (KWEB).
KWEB has already doubled off its October bottom. And momentum is now in its favor.
But today, I want to focus on another part of the China story…
Volatility.
China crippled its economy with “zero COVID” lockdowns for nearly three years. But then, in late 2022, the government abruptly pivoted. And now, its markets are roaring back.
The surprising move has led to extreme volatility over the past few months.
As I’ll explain today, clever investors are taking note. And with just a few clicks of the mouse, you can join a group that earns roughly 6% per month in extra income…
Put simply, in times of elevated volatility, options premiums increase. And when that happens, investors like us can use options to boost our monthly income.
Trading options might seem confusing at first. But it isn’t so bad after you learn the basics…
For example, a call option gives an investor the right to buy a stock at a predetermined price at a set point in the future. You can think of it like a down payment on a stock…
Your down payment locks in the purchase. It’s non-refundable. But it is tradeable.
One call-option contract controls 100 shares of stock. And its price fluctuates as the underlying stock moves up or down.
Now, it’s OK if you don’t want to trade options yourself. You can still capitalize on what’s happening in China today…
You see, the professional managers at KraneShares will do the hard work for us. In short, they just created an exchange-traded fund (“ETF”) to profit from the extreme volatility…
I’m talking about the KraneShares China Internet and Covered Call Strategy Fund (KLIP).
This ETF gives investors a “one click” way to take advantage of elevated options premiums in Chinese Internet stocks. So essentially, KLIP is a next-level investment in KWEB.
KWEB trades for about $34 per share today. As part of their strategy, KLIP’s managers will buy KWEB shares and sell covered calls on them at a “strike price” of $34.
The strike price is simply the price at which the underlying stock can be bought or sold. And KLIP’s managers generally pick strike prices closest to the stock’s current level.
Options also expire at a specific time in the future. In some cases, they can be bought or sold years before expiration. But since KLIP is designed as a way to make monthly income, its managers target options that expire in about a month.
So let’s get an idea of how it all works. We’ll look at the $34 calls that expire on March 3…
These calls currently trade for a listed price of roughly $1.90. That’s the price per share. And since one contract covers 100 shares, the total price per contract is about $190.
Here’s how investors can use this strategy to generate extra income each month…
KLIP’s managers could buy 100 shares of KWEB at $34 per share. That’s roughly $3,400. Then, they could sell a call option to an interested buyer for a total of $190 per contract.
The bottom line is simple…
For every $3,400 of KWEB shares that KLIP’s managers own, they can generate roughly $190 in extra income per month. That works out to about 5.6% per month.
Of course, KLIP is working with millions of dollars in assets under management. So the ETF’s managers will be trading these contracts several times each month.
The premiums will fluctuate. Sometimes they’ll be higher… sometimes they’ll be lower. But it’s safe to say that investors in KLIP can expect to receive a solid dividend each month.
Options contracts rarely trade at such high premiums – especially on ETFs. So this is a rare opportunity for interested investors to boost their income with just a few clicks of a mouse.
If you’re comfortable trading options on your own, you can make this trade yourself. But as you can see, KLIP allows beginners to take advantage of this extreme volatility as well.
Consider putting your money to work in KLIP today.
Good investing,
Briton Hill
