EEM – iShares MSCI Emerging Markets Index – The emerging markets ETF dominated the upper slots of our ‘most active by options volume’ market scanner today with heavy trading activity across multiple contracts. Shares of the EEM have slipped slightly by less than 1% to arrive at $30.51. Skipping ahead through the more populated expiries, we noticed an interesting slightly bullish trade in the January 2010 contract. The investor responsible appears to have initiated the purchase of 10,000 puts at the January 29 strike price for an average premium of 3.44 apiece. The way the trade was marked suggests that this trader likely purchased an equivalent number of underlying shares of the fund. Thus, he is using put options to protect the long stock position from adverse movements in the ETF through expiration at the start of 2010. He would optimally like the puts to expire out-of-the-money by expiration and the value of the fund to increase. However, if the value of the ETF should decline over time, he has positioned himself to profit beneath the breakeven point located at $25.56.
EWZ – iShares MSCI Brazil Index – Shares of the ETF have rallied higher by about 2% to $50.85, recovering a portion of the losses experienced by many Brazilian stocks yesterday. Investors who fear further bearish movement in the fund during the remainder of 2009 were seen making protective plays in the September and December contracts today. One trader established a ratio put spread by purchasing 10,000 puts at the September 45 strike price for an average premium of 3.10 each against the purchase of 20,000 puts at the September 35 strike for 85 cents per contract. The net cost of the ratio spread amounts to 1.40 and yields maximum potential profits to the downside of 8.60 if shares were to sink down to $35.00 by expiration. Another individual seeking protection against potential share price erosion was willing to pay a premium of 4.60 apiece for 5,000 put options at the December 45 strike price. Profits would amass for this trader given a 21% decline in the price of the underlying shares through the breakeven point at $40.40 by expiration at the end of the year.
EWJ – iShares MSCI Japan Index Fund – Shares of the Japan fund are slightly higher by less than 1% to $9.31 today, but one investor has prepared himself for near-term bearish movement. EWJ appeared at the top of our ‘hot by options volume’ market scanner after the trader purchased 25,000 puts at the July 9.0 strike price for a premium of 18 cents per contract. The investor is likely long shares of the underlying and has bought the put options to protect his position from potential downward movement in the price of EWJ through expiration. Protection would kick in if shares dropped approximately 5% from the current price to the breakeven point located at $8.82.
EXPE – Expedia, Inc. – The online travel company has experienced a more than 1% decline in the value of its shares to arrive at $15.27 for the day. Option bears were prodded into action by a widely read newsletter and took heed of the recommendation to buy the July 15 strike price where nearly 12,000 puts changed hands for 93 cents apiece. It appears that these put-buying investors are bracing for continued downward movement in the stock over the next month. Profits begin to amass for the traders if shares sink 8% from the current price to the breakeven point on the transaction at $14.07.
