Emerging market ETF sees bearish option action-analyst

Share This Article
April 2, 2009 4:48pm ETF BASIC NEWS

bear1

By Doris Frankel

 CHICAGO, April 2 (Reuters) – Many option traders on Thursday appeared to be betting the share gains in an emerging market exchange-traded fund will be short-lived and aggressively bought puts and sold calls, according to one analyst. 

Shares of the iShares MSCI Emerging Market fund EEM.P rose 5.42 percent, or $1.39, to close at $27.04. 

In all, about 137,000 puts and 116,000 calls changed hands in the ETF, above its daily combined volume of 154,000 contracts, data from option analytics firm Trade Alert show. 

“The trading pattern on the emerging markets ETF was bearish except for one investor, who went against the grain today,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, in a note to clients.

 Investors often use equity puts, which allow them to sell the security’s shares at a given price and time, to protect stock holdings or to speculate on a stock’s future weakness.

 Call selling is often viewed as a neutral to bearish strategy. A call seller is obligated to deliver the stock at the fixed strike price in exchange for the premium received.

 At the April $25 strike price, about 30,500 EEM puts were purchased for an average premium of 48 cents each, while the June contract attracted investors looking for protection at even lower strikes, he said.

 Wilkinson also said at the June $21 strike price, 10,000 puts were picked up for 66 cents apiece whereas 5,000 puts were bought at the June $24 strike for $1.37 apiece.

 Call options were also sold in heavy volume, with 5,000 lots shed at the same $24 strike for $4.45 as some traders were seen booking gains on the current rally in the stock’s price, he said.

 Similarly, he noticed that 10,000 calls were shed at the now in-the-money June $27 strike for $2.55 per contract.

 Wilkinson said some investors do not see the rally continuing through $31 by expiration in June as 32,500 calls were sold at the June $31 strike price for 90 cents apiece.

 But one investor supported the fund’s gains by selling 25,000 puts at the June $24 strike for $1.32 each to fund the purchase of 25,000 calls at the June $29 strike price for a premium of $1.64, he said.

 This trader established a bullish call position at the June $29 strike and vastly reduced the outlay to just 32 cents a contract by selling the same amount of June $24 strike puts.

 The investor would begin to realize profits at a share price of $29.32 by June expiration, he said. (Editing by Jan Paschal)

Source: reuters.com



9 "BUY THE DIP" Growth Stocks For 2020

Read Next



Free Investing Ideas Newsletter!

Join over 70,000 investors who get the latest insights and top rated picks from our free investment newsletter.

Most Popular



7 Best ETFs for the NEXT Bull Market

Explore More from ETFDailyNews.com

Free Investment Newsletter

Join over 70,000 investors who get the latest insights and top rated picks from our free investment newsletter.

ETFDailyNews.com respects your privacy.

Best ETFs

We've rated and ranked nearly 2,000 ETFs and ETNs using our proprietary SMART Grade system.

View Top Rated ETFs

Best Categories

We've ranked dozens of ETF categories based on relative performance.

Best ETF Categories