Shares of Cambricon, often called ‘China’s Nvidia’, have dropped by more than 7%. This fall is part of a larger decline in Chinese stock indexes. The drop in shares comes after reports that Chinese authorities may impose limits on stock speculation. As a result, Chinese shares are continuing to decline in response to this news. This situation creates a lot of uncertainty in Chinese markets, which often triggers derivative strategies. We should expect higher implied volatility, especially in the tech sector and broader indexes like the FTSE China A50. In such an environment, it makes more sense to buy options rather than sell them in the coming weeks. We’ve seen a similar situation before and need to respond accordingly. During the regulatory crackdowns that began in 2021, the Hang Seng Tech Index lost over 40% of its value, as policy announcements led to ongoing sell-offs. This period taught us that even rumors of government actions can outweigh fundamental analysis for months. Considering this, we should explore buying put options on major Chinese ETFs or large-cap tech stocks. The recent increase in open interest for puts on the KraneShares CSI China Internet ETF (KWEB) shows that some traders are gearing up for a downturn. The volume for these puts rose nearly 30% in the last week. This strategy offers a clear and limited-risk way to profit if the market follows the past trend of declining on policy fears. Volatility itself is now a tradeable asset. We’ve noticed that measures of expected market fluctuations, like the CBOE China ETF Volatility Index (VXFXI), have already climbed towards 35. Historically, this level signals larger market moves ahead. Buying straddles on key indexes would allow us to profit from significant price changes in either direction, which is likely as the market reacts to any new regulations. For those who strongly believe the market will drop, shorting index futures on the CSI 300 or Hang Seng is a direct way to participate. The CSI 300 index has already decreased by 5% from its peaks in August 2025, showing that market sentiment is fragile and sensitive to policy changes. Such directives from authorities could easily push the market to retest its yearly lows.

here to set up a live account on VT Markets now