China A-shares Surge as State Council Releases Major Policy Boost; Options Market Sees Historic Gains

On September 24th, a press conference by the State Council Information Office released a series of significant policies, leading to a remarkable surge in China’s A-shares market. The three major indices—CSI 300, SSE 50, and ChiNext Index—all posted substantial gains, and bullish options across the board skyrocketed, with some contracts showing gains of over 10 times their value. The day’s movement is seen as one of the most historic in the market.

Nearly 50 contracts for ETF options and index options surged over 10-fold. Among individual contracts, four saw gains exceeding 100-fold. The most significant was the 50ETF September 2400 call option, which soared by an astonishing 239 times. Investors holding this option emerged as the biggest winners of the day.

On the morning of September 24th, the press conference released a slew of critical policy announcements, including cuts to reserve requirements (RRR) and interest rates, reductions in existing mortgage rates and down payment ratios, and the introduction of new tools to support the A-shares market. Over ten policy measures were unveiled.

After the press conference, the market saw a sudden surge in volume. The three major indices soared collectively, with the Shanghai Composite Index regaining the 2800-point mark. By the end of the trading day, the Shanghai Composite had risen by 4.15%, the Shenzhen Component Index had jumped 4.36%, and the ChiNext Index had surged by 5.54%. Total trading volume across the Shanghai and Shenzhen stock exchanges exceeded 970 billion yuan, with over 5,100 stocks advancing.

The rise in ETF indices resulted in a widespread surge in call options, with some showing the notorious "end-of-day rally" effect. Notably, nearly 50 contracts across ETF and index options, including the CSI 300, SSE 50, ChiNext, and others, rose by over 10-fold.

It is worth noting that the September ETF options were set to expire on September 25th, leaving only one trading day. Many of the call options were deeply out-of-the-money and would have become worthless upon expiry. However, the market's sudden rally led to an unexpected reversal, with some contracts gaining over 100-fold in a single day—a phenomenon described as the "end-of-day rally miracle."

By the market close, four contracts had gained over 100-fold. The 50ETF September 2400 call option led the pack, soaring by 239 times, followed by the SSE 300ETF September 3400 call option, which gained 164 times. The Shenzhen Exchange’s SSE 300ETF September 3453A and 3500 call options also gained over 100-fold, rising by 145 and 118 times, respectively.

According to Nanhua Futures' options analyst Zhou Xiaoshu, many out-of-the-money call options had almost zero premium as they approached expiration. However, the sharp rise in the stock market turned these out-of-the-money options into in-the-money options, resulting in a massive increase in premiums. The rapid rise in implied volatility also contributed to the surge in option premiums, with 50ETF options’ implied volatility jumping from 13.3% to 16.43%, and ChiNext ETF options’ implied volatility rising from 21.41% to 23.71%.

From a pure profit perspective, the gains of over 100-fold in a single day far outstripped other investment opportunities in the market. For instance, the 50ETF September 2400 call option had an open interest of 36,013 contracts by the end of the trading day, with a total premium of 17.29 million yuan. On September 23rd, the open interest for this contract was 123,200 contracts, with a total premium of only 246,400 yuan. In just one day, 87,181 contracts were liquidated. If we assume an average sale price of half the contract's peak value, these 80,000 contracts, which were worth only 160,000 yuan yesterday, became worth 20 million yuan today, representing a true windfall for investors.

Similarly, the SSE 300ETF September 3400 call option, with an open interest of nearly 100,000 contracts, saw its premium rise from 0.0001 yuan to 0.0330 yuan, an increase of 164 times. By the close of the market, the option's open interest had dropped to 32,700 contracts, with a total premium value of 10.79 million yuan, compared to just 32,700 yuan the day before.

Analysts at Ping An Futures noted that domestic demand remains weak, and improvement is still not evident. However, economic recovery is a gradual process that cannot happen overnight. External liquidity pressures have significantly eased, and the domestic policy environment has more room for maneuvering. Going forward, the market's upward potential will depend on the implementation of more counter-cyclical policies, driven by domestic factors.

Last week, China’s September Loan Prime Rate (LPR) remained unchanged, contrary to market expectations of a cut. As a result, market sentiment had become overly pessimistic. Therefore, when a series of strong policies were announced on September 24th, the domestic financial market experienced a significant positive surprise, driving the sharp rise in the prices of the CSI 300 options. Looking ahead, the economic cycles of China and the US are expected to realign, and with the support of a series of domestic policies, the domestic market is likely to gradually improve.

The value of an option consists of two parts: intrinsic value and time value. At-the-money options have the highest time value, while deep in-the-money and out-of-the-money options have the least. As the expiration date approaches, the time value of these options approaches zero. Out-of-the-money options have only time value and no intrinsic value.