“As emerging markets continue to underperform, a big spread is looking to profit from more of the same. The iShares MSCI Emerging Markets Index Fund (NYSE:EEM) is down 2.2 percent to $45.28. The EEM remains above its level from two weeks ago but has been trending lower after again running into resistance just above $48,” Chris McKhann Reports From Option Monster.

McKhann goes on to say, “The options volume is 148,000 contracts so far today, which is less than average, but puts outnumber calls by a margin of 5 to 1. One trader bought 30,262 May 43 puts for $1.41 and, at the same time, sold 30,262 May 38 puts for $0.48.”

“The volume at the lower strike was less than open interest, so it could be a closing transaction. However, it doesn’t make too much sense for a trader to roll up puts in the current environment, so it does appear that this is a new opening put spread. It could also be a protective hedge on existing long shares of the fund, which is a favorite holding with some big institutional investors. The spread cost the trader $0.93, which is the maximum risk. If the EEM is below $38, the trade has a potential payout of $4.03,” McKhann Writes.

Visit our iShares MSCI Emerging Markets Index Fund (NYSE:EEM) category: HERE

NYSE:EEM