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Monday, February 26, 2024

Japan Bear Goes Defensive on Nikkei

Today’s tickers: EWJ, V, JPM & EFA

EWJ – A massive options position has been initiated on the Japan exchange-traded fund this morning amid a slight 0.3% increase in shares to $10.13. The 150,000 contracts exchanged on the EWJ today are likely the work of one investor who was probably also responsible for another 100,000 contracts traded late yesterday afternoon. The trader appears to have sold 75,000 calls at the January 2011 12 strike for a premium of 35 cents apiece in order to partially finance the purchase of 75,000 puts at the March 2010 10 strike for 65 cents each. The net cost of the spread amounts to 30 cents per contract for a total cost of $2,250,000. Perhaps the investor established the trade to protect a long position in the underlying stock because he is concerned by prospects for price weakness through expiration in March. If this is the case, downside protection will kick in if the price of the fund slips 4% to breach the breakeven point at $9.70. Interestingly, another 100,000 contracts were exchanged at the same strike prices during yesterday’s trading session for a net cost of 28 cents apiece. Both the calls and puts traded to the middle of the market making it difficult to discern magnitude. However, we believe it is likely the investor has increased the size of the protective stance. This would leave the trader short 125,000 calls in the January 2011 contract and long 125,000 puts in the March contract. – iShares Japan Index Fund –

V – Investors piled into put options on the electronic payments network, pushing the global financial services brand onto our ‘most active by options volume’ market scanner. Shares declined as much as 5.5% this morning to $69.68, but have since recovered slightly to stand 3% lower at $71.13. Traders bracing for further bearish momentum in the stock vied for near-term puts in the October contract. The most pessimistic individuals picked up 1,000 puts at the October 65 strike for 59 cents each. The October 67.5 strike had approximately 6,000 puts purchased for an average premium of 1.27 apiece. Finally, the now in-the-money October 72.5 strike had nearly 3,000 put options coveted by bearish traders for about 3.16 per contract. The rise in demand for put options fueled the 20% rise in option implied volatility experienced by Visa today. The stock’s implied volatility reading shifted up from a low of 30% to an intra-day high of 36%. – Visa, Inc. –

JPM – Bullish sentiment was observed on JPM despite the more than 1% decline in shares to $43.85. Investors expecting the stock to improve by expiration in November were seen scooping up call options at the November 45 strike where approximately 5,300 calls were coveted for an average premium of 2.28 apiece. Traders will begin to amass profits if shares of JP Morgan rally 8% higher to surpass the breakeven price of $47.28 by expiration. Shares of the financial firm have remained beneath the breakeven point described since October 2, 2008. However, the stock traded a scant 81 cents beneath the profit point on September 22, 2009, when JPM was at $46.47. – JP Morgan Chase & Co. –

EFA – The exchange-traded fund representing stocks from Europe, Australasia, and the Far East attracted bearish attention from option traders today. Shares are currently off slightly by less than 0.25% to $54.37. One investor initiated a put spread on the fund by purchasing 3,000 puts at the November 54 strike for 2.00 each, and simultaneously selling 3,000 puts at the lower November 52 strike for an average premium of 1.30 apiece. The net cost of the pessimistic play amounts to 70 cents per contract. If the investor holds a long position in the underlying stock, he has established downside protection in case shares decline 2% from the current level to breach the breakeven point at $53.30 by November’s expiration. Otherwise, the trader is short the stock and simply bearish on the EFA. If this is the case, maximum potential profits of 1.30 per contract will accrue if the price of the fund falls 4% to $52.00 by expiration. – iShares MSCI EAFE Index ETF –


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