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.
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.