Options Combo Trade Bullish On Emerging Markets ETF
by Option Review - May 28th, 2014 4:06 pm
Shares in the iShares MSCI Emerging Markets Index (Ticker: EEM) are up more than 15% since early February, when shares in the ETF touched $37.05 and the lowest level of 2014. EEM shares are on the rise today too, up 0.35% on the session at $42.92 as of 11:30 a.m. ET. A large options combination trade on the EEM this morning looks for the price of the underlying to continue to march higher during the second half of the year.
One options market participant appears to have sold 15,000 of the Dec 35.0 strike calls at a premium of $0.55 each in order to partially offset the cost of buying the Dec 44/48/52 call butterfly spread. All told, the four-legged trade cost a net $0.30 per contract and positions the strategist to reap maximum possible gains of $3.70 per contract in the event that EEM shares surge 12% during the back-half of 2014 to hit $48.00 and the highest level since July of 2011 by expiration in December of this year.
Selling the Dec 35.0 strike puts reduces the cost of establishing the bullish view on the EEM, but implies the risk of potentially having 1.5 million shares of the underlying delivered to the seller at the striking price if the emerging markets ETF surrenders recent gains (and then some) to dip below $35.00 at expiration. Meanwhile, to the upside, risk of loss is limited to the premium paid on the strategy, or $0.30 per contract. Profits start accruing on the call ‘fly if shares rally above a breakeven share price of $44.30 and max out with the underlying at $48.00. In the event that shares continue to rally above $48.00, profits shrink to zero at the upper breakeven point of $51.70 and give way to a maximum loss of $0.30 per contract at any share price above $52.00.
Chart – EEM shares up in 2014, Dec 44/48/52 call ‘fly eyes further upside
Monday Market Movement – Down for a Change
by phil - April 9th, 2012 8:23 am
Wheeeeeee!
What a ride we're getting (see Bespoke Charts). We discussed the fun that led up to this drop on Friday, so no need to rehash it here. Over the weekend, Philstockworld reviewed "This Month in Fascism" and I put up a post outlining "Capitalism's End Game" where we had some nice additional discussion in that post's Member Chat so read that an you're all up to speed.
That brings us to what is happening now. There was little news this weekend other than inflation accelerating in China, with their CPI hitting 3.6% in March vs 3.3% expected but that number is BS anyway as food alone is up 7.5%. For the Quarter, the CPI was up 3.8% overall and China's target for the year is 4% so this effectively takes stimulus action off the table for now. The ONLY thing keeping CPI lower is the now-steady price of housing, which is down at 2% but that's still 2% higher than prices the Government has already decided the people can no longer afford.
China is clearly slowing down but STILL having inflation. The WSJ points out that China's iron-ore demand is down and other emerging-market economies also appear to be losing steam with India's growth down to 6.1% and Brazil down to 3% with Russia having almost no growth at all. So much for the BRICs… "Year-to-date returns have been quite deceptive. All that really happened in 2012 is a typically powerful bear-market bounce off 2011 lows," said Michael Shaoul, chairman of Marketfield Asset Management.
We've been hanging onto long-term short EDZ positions in anticipation of a sell-off in the emerging markets and, despite $25.6Bn of net inflows in Q1 (the most since 2006), EEM has gone nowhere since the end of January, which is funny, since only $1.7Bn flowed into the US stock market in Q1 yet our indexes are up 10% – but that's a different article!
Anyway, so EDZ is still at $12.79 and if we figure we get a 10% pullback in the Emerging Markets then EDZ pops 30% to $16.62 and you can buy the May $14/16 bull call spread for .40 with a 400% upside at $16 and we used to…