German stocks have been climbing, and one investor apparently
doesn't want to let them get away.
optionMONSTER's Heat Seeker monitoring program detected the
purchase of about 7,000 March 27 calls on the iShares MSCI Germany
Index Fund for an average price of $0.175. Some 3,900 March 25 puts
were sold at the same time for $0.30.
The trader paid roughly $5,500 to open the position, which is
highly leveraged to further gains in the EWG. If the
exchange-traded fund continues to rally, he or she stands to reap
huge profits on the
puts sold short
will become worthless. The opposite will be true in the event of a
While investors often create "synthetic long" positions by selling
puts and buying calls, the unusual thing about yesterday's strategy
is that more calls than puts were traded. That makes the position
more leveraged to the upside than to the downside.
The trader could also be required to buy shares in the fund because
of the short puts. But that
might not be a problem
if he or she is bullish on German equities.
The trade was probably the work of an investor who's missed the
rally so far and doesn't want to be left out if it continues. It
provides cheap upside exposure while locking in a buy order at $25
in the event of a pullback. (See our
The EWG fell 0.27 percent to $25.71 yesterday. It's up 27 percent
in the last year, more than triple the gains of the S&P 500.
Total option volume in fund was 16 times greater than average,
according to the Heat Seeker.
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