EEM (Emerging Markets) - Huge Bet for Emerging Markets New Lows Within One Month

L

livevol_ophir

ET Sponsor
EEM (iShares MSCI Emerging Markets) is trading 38.10, down 1.7% with IV30&#8482 up 8.8%.

<img src="http://2.bp.blogspot.com/_hMry1m7UF10/TAAFa5lwJrI/AAAAAAAACqI/aACnk75-y84/s1600/eem_summary.gif">

The ETF has traded over 500,000 options on total daily average option volume of 271,400. The puts have traded on an 8:1 put:call ratio. The largest trade, accounting for 300,000 contracts, was a Jun 25/30/35 put butterfly. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/05/eem.html"> in the article</a>).

The 25/30/35 butterfly PnL is included (<a href="http://livevol.blogspot.com/2010/05/eem.html"> in the article</a>).
Price: $0.48 + $0.03 - 2*$0.11 = $0.29
Outlay (Max Loss): 100 * 75,000 * $0.29 = $2,175,000
Max Gain: 75,000*100*($5 - $0.29) = $35,325,000

The trade makes $35 million at expo if EEM pins at or near $30. The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/05/eem.html"> in the article</a>) illustrates the vols in the trade.

It's actually a very pretty skew. Essentially a perfect shape. I don't see this as a skew bet, it's a delta bet.

Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/05/eem.html"> in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

The 52 wk. range is [30.12 46.66]. The one phenomenon that jumps out at me is the color of the volume bars at the bottom (circled). You can see they are mostly red - this indicates a pre-dominance for open order put purchases by customers on ISE. Or, in English, bearish customer order flow.

Make no mistakes - this is a bet that reaches max gain if the Emerging Markets Equity Index hits a new low in the next four weeks.

This is trade analysis, not a recommendation.

Details, trades, prices, vols, skews, PnL here:
http://livevol.blogspot.com/2010/05/eem.html
 
Quote from livevol_ophir:
----EEM (iShares MSCI Emerging Markets) is trading 38.10....
----The largest trade, accounting for 300,000 contracts, was a Jun 25/30/35 put butterfly.
More...
1) If only there were a Submerging Markets ETF instead.
2) Are you "filtering out" these big trades you post about or.....are you the one doing them? :confused: :eek: :D
 
Quote from nazzdack:


2) Are you "filtering out" these big trades you post about or.....are you the one doing them? :confused: :eek: :D
More...

That's def not me. I woulda bet more LOL. I'm kidding of course...
 
Quote from livevol_ophir:

A delta bet is directional (i.e. stock up or down).

A skew bet is a vol bet.
More...

:) Thanks, by the way u know any good cheap option books $20 or less? I lost $300 already with options and if the market goes down I will lose more. So I really hope this delta bet doesnt pan out.:(

btw didn't this bet happen 2 days ago with 240k options??
 
Quote from failed_trad3r:

:) Thanks, by the way u know any good cheap option books $20 or less? I lost $300 already with options and if the market goes down I will lose more. So I really hope this delta bet doesnt pan out.:(

btw didn't this bet happen 2 days ago with 240k options??
More...

It looks like 60,000 of these same butterflies traded 5-24-2010. The best options book I know is Natenberg (that's the author's last name).
 
Quote from failed_trad3r:
....u know any good cheap option books $20 or less?
More...
1) McMillan, Natenberg and then Cottle is a good "progression".
2) Contact username dagnyt.
3) Go to the public library in a wealthy suburb. They're more likely to have the better stuff. :cool:
 
I found it this comes from yahoo options


EEM - iShares MSCI Emerging Markets Index ETF – An enormous bearish put butterfly spread comprised of 240,000 put options cast a gloomy shadow over the emerging markets fund late in afternoon trading. Shares of the EEM, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the MSCI Emerging Markets Index – an index created to measure equity market performance in the global emerging markets, are down 0.35% at $37.21 as of 3:30 pm (ET). The massive bearish transaction on the fund suggests one big player is bracing for a potential 19% pullback in the price of the underlying shares by June expiration. The butterfly spread spans the June $25/$30/$35 strikes, with 60,000 puts picked up at the June $25 strike for a premium of $0.11 each [wing 1] and another 60,000 puts purchased at the higher June $35 strike for a premium of $0.88 apiece [wing 2]. The body of the butterfly involved the sale of 120,000 puts at the central June $30 strike for a premium of $0.27 a-pop. The net cost of the spread amounts to $0.45 per contract. The EEM’s shares must slip beneath the upper breakeven price of $34.55 before the investor starts to make money ahead of June expiration. Maximum available profits of $4.55 per contract pad the investor’s wallet if shares of the underlying fund fall 19.35% from the current price to settle at $30.00 at expiration. Shares of the EEM last traded below $34.55 back on August 19, 2009, and touched a 52-week low of $30.12 back on June 23, 2009. The investor responsible for the giant transaction only ever risks losing $0.45 per contract, but stands ready to amass more than 10 times that amount – $4.55 per contract – if shares nose-dive down to $30.00 ahead of expiration day next month.

So is this new transaction an average down?
btw ive been copying yahoo options report trades but it doesnt seem to work that well also I bought some XLK 24 calls because somebody else bought them but they lost value.
 
You must log in or register to reply here.
Back
Top