Taiwan ETF Gets a Vote of Confidence

Feb.17.10 | About: iShares MSCI (EWT)

By David Russell

The Taiwan ETF (NYSEARCA:EWT) seems to have found support above $11.50, and one investor is betting that it will hold that level.

EWT Chart

optionMONSTER's tracking programs detected the sale of 32,850 March 12 puts for $0.35 and $0.40--more than 2.5 times existing open interest in the strike. A surge of stock buying followed the option trade, suggesting hedging by the dealer who took the other side of the options transaction.

The iShares MSCI Taiwan Index (EWT) rose 1.19 percent to $11.95 yesterday. The fund lost 13 percent of its value between mid-January and Feb. 5 but then found support at the same level that had served as resistance in May and July 2009.

Some chart watchers may conclude from the price action that the EWT has limited downside risk. Yesterday's option trade is designed to earn premium from the fund holding its current level and will make money as long as it closes above $11.65 by March expiration.

The put selling pushed overall options volume in the EWT to nine times greater than average.

(Chart courtesy of tradeMONSTER)