* Put buying outpaces call buying in EEM fund over past 2
* Put open interest stands out in VWO fund in near term
By Doris Frankel
June 13 Many participants in the U.S. options
market appear to be stepping up their portfolio insurance in
some international exchange-traded funds to offset concerns
about the short-term outlook for global markets.
Strategists have noticed increased buying activity in
downside puts in ETFs covering emerging markets as those markets
have dropped substantially in recent weeks.
"We have seen a lot of weakness in the emerging markets and
the heavy put buying suggests traders are hedging themselves for
potential continued trouble in global markets over the next few
months," said Ryan Detrick, senior technical strategist at
options research firm Schaeffer's Investment Research.
Traders often use options in ETFs as part of strategies and
hedging techniques to protect stock positions.
The put activity has been most active in the iShares MSCI
Emerging Markets fund and Vanguard FTSE Emerging Markets
fund, given the weak emerging markets.
Both funds have both lost nearly 10 percent since May 8.
"We do sense that a higher level of concern has entered
global markets," said Alec Levine, equity derivatives strategist
at Newedge Group SA in New York.
Stock markets in China, Australia and Brazil have all fallen
sharply since mid-May as investors worry about reduced support
worldwide from central banks and China's economic growth.
"One of the problems is that in the Asia-Pacific region,
there is insufficient demand for commodities from China, causing
adjustments from Australia and Brazil," said Jared Woodard, a
principal of options research firm Condor Options in Forest,
Newedge's Levine noted investors have been buying puts and
put spreads on the EEM, VWO and iShares FTSE/Xinhua China 25
Index fund over the past month due to the slowdown in
emerging markets economies, notably China.
Overall volume on the EEM fund on Thursday was 2.5 times the
daily average, with 658,000 puts and 210,000 calls changing
hands, according to options analytics firm Trade Alert. Part of
that turnover was driven by a large put trade as an investor
braced for additional losses in the emerging markets.
During the session, the August $37-$39 put spread on the EEM
traded 235,379 times for a total net premium of 68 cents. The
investor sold August $39 puts at a profit and rolled the
position to buy lower strike August $37 strike puts, looking for
a move below $37 in the fund by expiration, said Frederic Ruffy.
WhatsTrading.com options strategist.
"Big block buyers have been active in June, July and August
downside puts in the two ETFs since late May and reaping
substantial profits amid increasing volatility across global
financial markets," Ruffy said.
Over the past 10 trading days, 3.53 puts have traded for
every one call in the EEM fund as a new position on three U.S.
options exchanges, data from Schaeffer's Investment Research
What is even more significant is that the open interest on
the VWO fund shows 218,650 puts compared with 15,141 calls,
resulting in a ratio of 14.44 puts for every one call
outstanding for near-term option expirations, Detrick said.
Shares of the EEM, which tracks the equity performance of
emerging markets such as Brazil, Russia, India and China, rose
2.09 percent to end at $39.93. The VWO fund closed 2.30 percent
higher at $40.37.