This stock group just made two golden crosses, and options traders are pouring in

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Options traders pour into Chinese tech stocks

There's only one stock group that has trounced U.S. tech since October.

That under-the-radar winner has been Chinese tech, tracked in part by the KraneShares CSI China Internet ETF (KWEB). Since the start of October, it has climbed 28%, beating the nearly 17.5% run by the U.S.-based Technology Select Sector SPDR Fund (XLK).

KWEB's bullish streak isn't the only thing encouraging options traders to bet on a bigger move, Christian Fromhertz, founder and CEO of Tribeca Trade Group, said Thursday on CNBC's "Options Action."

"KWEB has been recently seeing 11 times more call volume than put volume. So, we're seeing a massive push going into these China names," including individual stocks within the exchange-traded fund, Fromhertz said.

Those include what the trader referred to as "second-tier China internet names" like Bilibili, Iqiyi and Trip.com as well as larger, more established plays like Alibaba, Baidu and JD.com.

"What this is telling me is two different things. The breadth is really strong in terms of the group. It's not just the internet that people are going after, it's the actual individual names," Fromhertz said. "It's also underowned."

Part of investors' distaste for the Chinese internet stocks has been tied to fears around buying into the Chinese market in the middle of a U.S.-China trade dispute, he said.

"Institutional money that has been on the sidelines, that has been afraid to get into China, has now been pushing in," Fromhertz said. "I think it's a great time, too, considering that right now, the trade war is taking a little bit of a back seat. It will reemerge again, but I think it's been settling down ... which has been a really great time for investors to go back in."

As such, Chinese internet stocks have outperformed their U.S. counterparts in recent weeks, with the KWEB and the Dow Internet Index (FDN) recently forming a bullish pattern known as a "golden cross" in their relative chart, he said. A golden cross is when a stock's shorter-term moving average crosses above one or more of its longer-term moving averages.

"We've had this base go on for a long time, and now we're starting to see what's known as a golden cross where the 50-day moving average is actually crossing over the 100-day moving average and the 200-day moving average. So, I think this move is just getting started," Fromhertz said.

The same move — which traders typically see as a sign of positive momentum in a given name — is happening in KWEB's solo chart.

"You've got the golden cross both in the outperformance as well as the ETF itself," Fromhertz said. "So, I think even though this group has been really on fire the last week, I think this move is just starting and I think an option trade is a great way to express the view."

Fromhertz suggested putting on an options trade that expires later than most of the KWEB calls he spotted.

"I like going out a little bit further rather than a lot of the option activity that we're seeing, which is pretty short term," he said. "If you go out to the May [$]55 calls, you can purchase them for just over $2."

That trade represents a bet that KWEB, which hit a fresh 52-week high on Friday of $53.55 before cooling off slightly to just above the $52.90 level, can run about 4% by May's end.

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