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Lower volatility seen in global ETF

Chris McKhann (chris.mckhann@optionmonster.com)

A large trader is betting on lower volatility in the global iShares EAFE Index Fund.

optionMONSTER systems detected the sale of 4,000 June 70 calls for $1.17. Volume was well above the previous open interest of 1,542 contracts, indicating new activity.

This position is looking for the EFA to remain below that $70 strike price through expiration in mid-June. These calls may have been sold naked with an initial bearish bias but were more likely sold against long shares in a covered-call strategy . The latter would be bullish up to $70 but not beyond.

The trader is also betting that the volatility implied by the calls will be greater than the actual volatility in the exchange-traded fund, which tracks stock indexes in Europe, Asia, and Australia. (See our Education section)

The EFA is off 0.2 percent to $65.82 in midday trading, the middle of its recent range. Those calls have an implied volatility of 15.5 percent, but the 20-day historical volatility is just 10 percent.

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