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After Record Inflows, Options Turn Negative on Japan ETFs

A factory building has collapsed in Sukagawa city, Fukushima prefecture, in northern Japan. A massive 8.9-magnitude earthquake shook Japan, unleashing a powerful tsunami that sent ships crashing into the shore and carried cars through the streets of coastal towns.
Fukishima Minpo | AFP | Getty Images
A factory building has collapsed in Sukagawa city, Fukushima prefecture, in northern Japan. A massive 8.9-magnitude earthquake shook Japan, unleashing a powerful tsunami that sent ships crashing into the shore and carried cars through the streets of coastal towns.

Despite record inflows into the Japanese ETF, options traders are less than optimistic about a Japanese recovery.

An investor in the iShares MSCI Japan Index Fund sold April 11 calls, a bet the shares are unlikely to hit $11. Meanwhile, implied volatility rose on Jan. 12 puts, suggesting they're being purchased. The iShares Japan Index Fund closed at $10.57 Wednesday.

"The activity we're seeing is call selling and put buying, and both are fairly negative," said Mike Khouw, Cantor Fitzgerald's Director of U.S. Equity Derivatives Trading. "The unusually heavy volume suggests there is some overhang in the Japanese market," he added.

CNBC - Disaster in Japan - Japan Earthquake and Tsunami
CNBC - Disaster in Japan - Japan Earthquake and Tsunami

Despite the earthquake, tsunami and ensuing nuclear scare, shares of EWJ have held above the $9.15 52-week low reached in June.

The post-disaster low was $9.24, reached on March 15. In the days before the quake, the ETF was trading above $11.

According to TrimTabs, Japan ETFs hauled in an estimated $1.2 billion, or 17.9% of assets, in the week after the catastrophe. That's the heaviest weekly inflow on record.

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