One investor apparently thinks that paranoia is running high in
Japanese stocks and wants to profit from the situation.
optionMONSTER's tracking systems detected the sale of 35,000
December 8 puts in the iShares MSCI Japan exchange-traded fund for
$0.06. Volume was more than 4 times the open interest in the strike
at the start of the day, indicating new positioning. The trade,
which was one of the largest in the market during yesterday's
one day earlier.
The investor is betting that the EWJ will remain above $8 through
late 2012. If that turns out to be right, those puts will become
worthless and the trader will keep the $0.06 as profit. If the bet
is wrong, he or she could be forced to buy the stock at the strike
price and face potentially huge losses.
appears to be a major part of the strategy because it is
anticipating a bigger move than the EWJ has made in recent months.
Implied volatility is around 18 percent, while the fund has
fluctuated only about 14 percent.
is a common way to make money from a perception that premiums are
too high. (See our
The EWJ, which fell 0.44 percent to $9.10 percent yesterday, has
been trading in a narrow range since May. The fund hasn't seen $8
in more than three years, which is probably giving the investor
confidence that it will stay above that level in coming months.
Overall option volume the fund was quadruple its daily average.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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