As the dollar soars, emerging markets could be running into trouble, trader warns

As the dollar charges to fresh 2018 highs, one trader is betting on trouble ahead for the emerging markets.

Global stocks have been a hot trade for investors with the iShares MSCI emerging markets ETF (EEM) surging more than 15 percent in the past year, outperforming the S&P 500, which is up just 10 percent in that time. However, Dan Nathan, co-founder and editor of RiskReversal.com, warns the options market could be predicting that the Chinese tech-heavy ETF could be in jeopardy.

Tencent, Samsung, Alibaba and Taiwan Semiconductor make up roughly 16 percent of the EEM. While the stocks have been hot over the last year, they are all down sharply from their recent highs.

Tuesday on CNBC's "Fast Money," Nathan noted that there was an abundance of bearish activity this week.

Specifically, Nathan pointed out a trader's purchase of 21,000 June 42/45 put spreads, paying 55 cents per contract. This is a bearish bet that the emerging markets ETF will fall below $44.45 by June, or down nearly 5 percent from its current levels.

"Pretty interesting breakdown level in $42, [it] may be some decent support surrounding a 'toppy' sort of feel" he said. "So maybe this is a little protection against a long position in the EEM."

Shares of the emerging markets ETF have fallen 1 percent so far this year and were down Wednesday afternoon at around $46.60.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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