Asian funds attract volatility trades

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At least one big investor is positioning for greater volatility in Asian equities.

EWH optionMONSTER's Depth Charge tracking system detected the purchase of 20,000 March 9 puts on the iShares MSCI Japan Index ( EWJ ) 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 Kong ( EWH ) 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 higher volatility.

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)



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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This article appears in: Investing , Options

Referenced Stocks: EWH , EWJ

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