By David Russell
Emerging markets fought back from their lows yesterday, but one big investor is treading cautiously.
optionMONSTER's Depth Charge monitoring system detected a surge of put volume in the iShares MSCI Emerging-Market Index fund, which tracks major countries such as Brazil, Russia, India, and China. The activity consisted of four large blocks, each with 52,402 contracts in the September 38 puts, September 33s, the October 39s, and the October 34s.
Volume was below open interest in both the September strikes but not in October, which suggests that a large bearish put spread was rolled from one month to the next.
It appears that the September position was closed for a credit of $0.31 and the October trade was opened at a cost of $0.99, resulting in a total cost of $0.68. In return, the investor has the right to collect $5 if the EEM closes at or below $34 on expiration--a level it hasn't seen in more than two years. (See our Education section)
The fund ended yesterday's session down 1.03 percent to $41.13. It has underperformed the S&P 500 for more than a year.
The trade pushed overall option volume in the EEM to twice the average amount, with puts outnumbering calls by more than 5 to 1.