Why trader is selling calls in Brazil ETF

optionMONSTER

Call selling led yesterday's option activity in the iShares Brazil Capped Index Fund.

More than 13,000 EWZ May 57.50 calls traded, compared to the previous open interest of 4,374 contracts at that strike. Almost all of the volume was sold, with the biggest block of 5,000 going for $0.13.

The calls may have been sold naked with an initial bearish bias. Alternatively, they could have been traded against long shares in a covered call position, which would be bullish up to the $57.50 strike price but not beyond. (See our Education section)

The EWZ gained 0.5 percent yesterday to close at $54.56. The exchange-traded fund has been rising for the last week off its 2013 lows and is now in the middle of its recent range. Shares encountered resistance at the $57.50 level six weeks ago. 

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