Low-volatility play in Japan ETF

Chris McKhann (chris.mckhann@optionmonster.com)
June 10, 2014

A big call trade in the iShares Japan Fund yesterday was part of a larger strategy that is looking for lower volatility that what's being priced into its options.

optionMONSTER systems show that 50,000 September 12 calls traded in one print for $0.28. The volume was about twice the previous open interest, so this was clearly a new position. That trade dominated the fund's total option volume of just over 52,000 yesterday, well above its daily average of 35,675 for the last month.

A minute after the calls hit, a block of 2.05 million shares of the EWJ traded for $11.78. Given the trade prices and the delta of the options, this appears to be a short-volatility play . (See our Education section)

The implied volatility of the calls is 16 percent. The 20-day historical volatility of the EWJ is 11 percent, while the 10-day reading is below 9.

The EWJ was down just $0.01 on the day to close at $11.80. The exchange-traded fund remains at its highest levels since late January. It found support at $11 after falling below that level a couple of times in March and April.

More From optionMONSTER