Emerging markets have struggled for months, but one big options trader seems to think they’ll hold the line.
Check out the big transaction that crossed this morning in the iShares MSCI Emerging Market ETF (EEM):
- A block of 46,500 December 36 puts was bought for $0.19. Volume was below open interest, which suggests an existing short position was closed.
- A matching number of February 36 puts was sold for $0.75. Volume was above open interest, which suggests a new position was opened.
It looks like the investor previously sold the December 36 puts, looking for EEM to remain above the strike price. They likely made money on that position, so they closed it and rolled into February. In the process they collected an extra $0.56 of income.
The strategy clearly has risks because they have almost unlimited losses from a drop under $36. But above it, they can profit even from a sideways move. Visit our Knowledge Center for more on turning time into money with options.
EEM fell 1.35 percent to $39.34 in midday trading. It’s lost about 15 percent of its value this year thanks to the U.S.-China trade war and slowing global growth. However, some investors may expect a rebound — especially if the Federal Reserve scales back its rate hikes next week.
Some chart watchers may also expect the fund to remain above $36 because it has potential support at that level and above it.
Disclosure: This post is intended for educational purposes only and shouldn’t be interpreted as a trade recommendation. Options trading may not be suitable to all investors.