While markets have sold off in recent days on mounting worry that Greece and other peripherals might default on their debt, options investors have shown unwavering faith in Germany, the stalwart nation that's been pulling much of the region's weight.
In recent sessions, put volume has stacked up in the iShares MSCI Germany Index Fund. At first blush this would appear a bearish bet on Germany, and by extension, Europe.
But the above-average volume Wednesday consisted of put sales. "It seems like a very aggressive bet that the German ETF will hold its value over the next few weeks, but that a huge bounce to the upside is not necessarily going to happen just yet," said Brian Stutland, Managing Partner at Stutland Equities LLC.
The Options Action contributor noted that the ETF, which tracks securities like Siemens, BASF and Bayer trading on the German market, has seen some volatility in recent weeks. The ETF's shares have fallen 5% over the past month. Still, they are up 35% on the year, even as sovereign debt woes have continued to plague the region. Continuing support from investors in Asia and the Middle East, who are buying debt to help fund peripherals' bailouts, has helped.
But options investors are not quite so sanguine on the euro, which Wednesday saw some put buying via the CurrencyShares Euro Trust , an ETF that tracks the price of the currency.
Jim Iuorio, TJM Institutional Services Director, sees the trade as a play on contagion risk throughout Europe. The euro is off nearly 5% since hitting 1.4888 on May 4, its highest level in more than a year .
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