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Options Traders Bet Against Emerging Market ETFs


We have spoken about the presence of downside put buyers in EEM (iShares MSCI Emerging Markets) for the past several months in these recaps, and with no exception, bearish buyers again emerged yesterday.

The May 42.50 strike puts in EEM, which expire in two weeks were purchased in size on Wednesday and this is into a recent surge in price in EEM, well off of its intraday low of $40.76 just twelve trading sessions ago.

We continue to note the relative weakness in China (FXI) relative to the broader MSCI EM Index in both the short term (YTD) as well as in the longer term (5 year rolling period).

The fact that China still makes up nearly 18% of the index as the top single country component is certainly weighing on overall basket performance.

In other activity, XOP (SPDR Oil & Gas Exploration) puts were active once more, with investors seeking June downside protection (52 strikes).

We also saw hedgers appear in XLI (SPDR Industrials), XLU (SPDR Utilities), and XLF (SPDR Financials) for example and snapped up puts either outright or through various put spread strategies, as yesterday’s equity selloff seems to have unnerved at least some folks.

In fund flows action, IEI (iShares Barclays 3-7 Year Treasury) and related ETF UST (ProShares Ultra 7-10 Year Treasury) had huge days in terms of trading volume and net asset inflows thanks what appears to be a tactical long “intermediate term” bond play to begin May here.

(IEI +$1.2 billion) and expect UST flows to follow in coming days. On the sell-side, Small Caps were pressured all day, and both IWM (iShares Russell 2000) and UWM (ProShares Ultra Russell 2000) were sold aggressively at some points and weighed heavily on the overall market all day.

Expect to see larger dollar asset outflows in both products in coming sessions in terms of net redemption activity.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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