Markets

Protection adjusted for Taiwan stocks

Taiwanese stocks have gotten destroyed in the global downturn, and one investor wants more protection.

optionMONSTER's Depth Charge tracking system the purchase of 43,580 December 12 puts on the iShares MSCI Taiwan Index Fund for $0.65. An equal number of September 13 puts were sold at the same time for $0.55.

Volume was below open interest in September but not December, which suggests that an existing position was rolled to the lower strike. The transaction let the investor obtain an additional three months of downside protection for a net cost of $0.10.

Adjusting the position now also let him or her avoid the accelerating pace of time decay that will occur in the front month as expiration approaches on Sept. 16. That effectively reduced the cost because it will ensure them a bigger credit from selling the puts they already owned. (See our Education section)

The EWT fell 3.82 percent to $13.09 yesterday and is down 12 percent in the last month following declines in the broader market. The country's economy grew at a better-than-expected 5 percent clip in the second quarter, but government analysts lowered their full-year outlook because of uncertainty abroad.

Overall option volume in EWT was 10 times greater than average yesterday, with puts outnumbering calls by more than 300 to 1.

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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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

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