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September 01, 2020 10:27am
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Option traders expect smaller swings in Emerging Market

Today’s tickers: EEM, FXI, CVTX, GE, TYC, XLF & STLD EEM iShares MSCI Emerging Market ETF – Investors appear to be anticipating lower volatility in emerging markets, perhaps taking a cue from patterns seen in the U.S. market. Shares have experienced a rally of 3% today to $23.03 and a couple of large-volume trades caught our attention in the January 2010 contract. A sold strangle was established by selling 24,500 calls at the January 35 strike and by selling 24,500 puts at the January 10 strike price for a gross premium of 1.03. As long as shares remain ‘strangled’ by the two strike prices, the 1.03 will be retained by this investor. A sold straddle was also initiated by an investor at the January 22 strike price by selling 24,500 calls and 24,500 puts for a gross premium of 8.30 on the trade. If shares settle at $22 next year at expiration this investor goes home happy with the full premium. However, if shares should swing in either direction through the breakeven points at $30.30 on the upside or at $13.70 on the downside, this trader would be exposed to limitless losses. Option implied volatility has already come off a great deal this week falling from Wednesday’s value of 64% to today’s 56% reading. FXI iShares FTSE/Xinhua China 25 – Shares of the China index have rallied nearly 3% to $25.83 today. One option trade that caught our eye in the April contract occurred at the 28 strike price and involved about 51,000 calls. It appears likely that the entire lot is tied to stock in some way. Perhaps this investor has sold the underlying shares and in buying call options secures a sharp exit in the event of a share price gain. If this is the case, this investor paid between 90 and 95 cents per contract for the rights to exit the short position by expiration if shares rise by about 8% to $28. CVTX CV Therapeutics – Stealing some of the Roche-Genentech thunder, biotech firm Gilead Sciences Inc. has said it will acquire biopharmaceutical company CV Therapeutics for $1.4 billion, sending CVTX shares upward by 28% and through the current 52-week high of $16.68 to $20.59. CVTX edged onto our ‘hot by options volume’ market scanner as option traders made their moves. Most notable in the April contract was the fresh interest established at the in-the-money 20 strike price where about 16,000 calls…
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