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Emerging Markets Out of Favor No More, Options Say

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Alex Williamson | Ikon Images | Getty Images

Do options traders see an Emerging Markets comeback?

Despite today's selloff, recent options activity suggests the answer is yes.

On Wednesday, investors piled into the April 50/52 call spreads on heavy volume in the the iShares MSCI Emerging Markets Index ETF — a trade that doesn't pay off unless the EEM rallies 15% between now and April. The May 49-strike calls also saw heavy activity Wednesday.

"This trading goes against the grain of recent protective trading we have noted in the EEM," Chris Jacobson, Susquehanna Financial Group Chief Options Strategist noted.

The trades defy a recent trend that's pushed emerging markets out of favor. A rapid succession of rate hikes in the BRIC and other emerging countries has spooked investors. Add to the mix Egypt's uprising, which has set off a rash of similar protests in the Mid-East, and investment flows have seen a steady shift out of E.M. and into developed markets.

Still, despite the uncertainty, some investors see potential for a rebound.

"People are trying to buy the rebound, but buying these stocks gets costly," said Dennis Davitt, Head of Equity Trading at First New York. "The less expensive way is to buy a call spread."

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