Huge hedge in emerging markets

Chris McKhann (
August 19, 2013

An enormous put trade tops today's option activity in the iShares Emerging Markets Fund as it slips again.

optionMONSTER's Depth Charge system show that a trader bought 104,000 December 35 puts for $0.90 and sold the same number of December 27 puts for the bid price of $0.12.

The trader is spending $0.78 on this huge out-of-the-money play, which is maximum amount at risk. The maximum potential gain in this vertical spread is $7.22, or just over $75 million, if the EEM is below $27 by the end of the year. (See our Education section)

Despite its heavily bearish initial appearance, this is very likely a hedge against long shares. The EEM is a primary holding of a number of investment funds, and these types of put spreads are often used to protect stock positions against potential pullbacks as an insurance policy.

The EEM is down 0.88 percent to $38.95, staying in its range of the last month. Shares reached a low of $36.16 in late June, but the exchange-traded fund hasn't been below $27 since April 2009.

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