Bears Go Global for Second Day

Aug.20.10 | About: iShares MSCI (EFA)

By Chris McKhann

Option traders are positioning for further downside in global stocks using the EAFE Index, following large bearish activity yesterday.

EFAClick to enlarge

(Click to enlarge)

The iShares EAFE exchange-traded fund (NYSEARCA:EFA) is down another 1.10 percent to at $50.28 today. This adds to yesterday’s losses and continues the trend of the last two weeks which has seen the price drop from resistance at $54. The fund tracks markets in Europe, Australasia and the Far East.

The most interesting trade here is a 10,000-lot put spread in October. A trader bought the 50 contracts for $2.31 and sold the 45s for $0.86, resulting in a net cost of $1.45. The volume at both strikes was more than open interest.

This put spread is looking for EFA to push back down to – or past – the 52-week low of $45.85 that was set in May. Our tracking systems also detected the purchase of more than 22,000 September 50 puts, mostly for $1.63 and $1.64, although volume was below open interest in that strike.

Overall options activity in the fund is more than twice the average level today, with puts accounting for more than two-thirds of the total. There was also a large put roll yesterday.

Disclosure: No positions