Markets

Options Update: EEM and EWZ

Last week, EEM gapped up after the Federal Reserve formally announced its plans to initiate a stimulus package of $600 billion over the next eight months.

This attempt to keep short-term interest rates low should help continue the carry trade of borrowing cheap money in the United States and committing these funds to higher-yield investments overseas, according to the analysts at www.stutland.com.

However, in the short term, EEM and other emerging market ETFs like Brazilian EWZ have now backed off and filled that gap.

While EEM reflects performance of the emerging markets as a whole, Brazil in particular is an interesting play because it is the center of the new carry trade. Brazilian fixed income securities have the highest yields in the world right now, beckoning a flood of capital into real-denominated assets.

Last month, Stutland Volatility Group discussed the idea of using covered call options to play both EEM and EWZ, maximizing potential returns while managing risk more effectively. Here is how those strategies have performed in the last two weeks:

EEM :

Long 100 shares at 45.50 (Current price: 47.94)

Sell 1 Jan 48 call at 1.38 (Current price: 1.99)

Stock: +$246.00. Option: -$61.00.

Total Profit: $185.00

EWZ :

Long 100 shares at 77.12 (Current price: 79.13)

Sell 1 Jan 81 call at 2.48 (Current price: 2.41)

Stock: +$199.00. Option: +$7.00.

Total Profit : $206.00

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.