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Large call spread targets Japan fund

Chris McKhann (chris.mckhann@optionmonster.com)

A large trade is making a cheap bet on gains in the iShares Japan Fund, which has been pushing to new highs with the recent rally in the Japanese stock market.

optionMONSTER's Heat Seeker system shows that a trader bought 10,000 September 12 calls for $0.17 and sold the same number of September 13 calls for an average of $0.065. The volume at each strike was far more than the previous open interest, clearly indicating new activity.

This call spread cost the trader just $0.105, which is the amount at risk if shares remain below $12 through expiration in mid-September. The maximum profit, almost 9 times that risk, would come with shares above $13. (See our Education section)

The trade follows a large bullish play made Friday in the WisdomTree Japan Hedged Equity Fund, another ETF that tracks Japanese stocks but is adjusted for currency fluctuations.

The EWJ was up 1 percent yesterday to close at $11.07, just off the 52-week high of $11.09 reached earlier in the session.. Shares of the exchange-traded fund were below $9 in mid-November and were last above $13 in June 2008.

Total option volume in the fund surpassed 73,000 contracts yesterday, 4.5 times its daily average. Calls outnumbered puts by more than 15 to 1.

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