At least one big investor is positioning for greater volatility
in Asian equities.
optionMONSTER's Depth Charge tracking system detected the purchase
of 20,000 March 9 puts on the iShares MSCI Japan Index (
) exchange-traded fund for $0.21. Less than an hour later, more
than 18,000 December 16 puts were bought on the iShares MSCI Hong
) fund for $0.15. Volume was above open interest in both strikes.
Both funds are up marginally today, but the EWH has significantly
outperformed its Japanese counterpart over the last three months.
Each would have to fall more than 10 percent for the puts to turn a
profit, but today's trades are apparently designed to profit from
Large blocks of shares were purchased in the corresponding funds at
about the same time as the puts, indicating the use of so-called
delta-neutral trades. The strategy is designed to create a long
position in volatility while eliminating upside or downside risk in
the share price. (See our Education section)
The trades make sense because implied volatility is about 19
percent in both funds, which is at or near the lowest levels in at
least three years.
The EWJ rose 0.30 percent to $10.17 in early afternoon trading,
while the EWH edged higher by 0.27 percent to $18.60.
(Chart courtesy of tradeMONSTER)
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