Unusual Options Activity: East Asia Bulls Offset US Small Cap Bears - Stutland
Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action."
Yesterday there was unusual options activity in iShares FTSE China 25 Index Fund and iShares MSCI Japan Index Fund . 40,000 FXI Oct. 30.5 puts were sold for $0.09 and separately 20,000 EWJ Jan. 10 calls were bought for $0.13.
Selling an FXI put is a neutral to bullish strategy that profits if the ETF is above 30.41 – 13.5% above yesterday's close – at October expiration.
The EWJ long call is a bullish strategy that profits if the ETF is above 10.13 at January expiration, which would be a 8% move higher.
The bullish tone of these trades is interesting given the predominately negative tone of news out of the region. Protests have sprung up across Chinaas the Chinese rally against the Japanese purchase of an island that the Chinese claim as their own. The protests have become severe enough that Japanese auto manufacturers like Toyota and Honda have temporarily closed their plants in China. However, these large trades show that some traders do not expect this to hold back the Chinese and Japanese stock markets in the coming months, and so they are gaining long exposure now.
Another large options trade yesterday was the purchase of 30,000 iShares Russell 2000 Index Fund Nov. 80 puts for $1.10. This is a bearish trade that profits if IWM is below 78.90 at November expiration. This is a 9.8% move from yesterday's close. IWM made a new all-time high last week and is currently just 1.4% below that level. The trader buying these puts is likely long small-cap stocks and is seeking protection from a potential market decline heading into the election.
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."
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