Trader bets $2M on German rally, but problem looms

Options Action: Big bets on Europe

One trader is betting big on Europe.

In a series of large trades that attracted a considerable amount of attention in the options pits, one trader bet over $2 million that the EWG, the ETF that tracks the German stock market, will rally 10 percent by April. Specifically, this trader bought nearly 60,000 April 30-strike EWG call contracts for about $30 each. Since buying a call option gives an investor the right to buy a stock or ETF at a set price within a set time, this wager is profitable if the EWG is above $30.35 or 10 percent higher by April expiration.

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The bet was made just before European Central Bank President Mario Draghi unveiled a massive bond-buying program in hopes of stimulating Europe's moribund economy. Betting that central banks will boost local equities has been a widely successful trade over the past couple of years. Since the Fed announced its own stimulative measures in 2009, the S&P 500 has more than doubled. After the Bank of Japan announced a QE program in October 2011, the has jumped 95 percent. Some traders appear to be betting that Europe's largest stock market may soon follow suit.

"Don't fight central banks by selling financial assets when they are buying them," said CNBC contributor Michael Khouw.

Still, while traders may have reason to be bullish on Europe, the EWG may not be the most effective way to play Germany. It's down 12 percent in the last year, while the DAX, Germany's main stock index, is up 7 percent.

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"When you buy the EWG, which is well below record highs, you are essentially getting long the euro," said The Lindsey Group's Peter Boockvar. "This person is essentially betting on German stocks and the direction of the euro, that the EWG could potentially play catch up."

The EWG was trading lower following the announcement and the euro is heading for its worst month in 2½ years.