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Protection is key to Hong Kong trade

David Russell (david.russell@optionmonster.com)

Hong Kong stocks have made a big move, and one investor has protection in place.

optionMONSTER's Depth Charge tracking system detected the purchase of 3,525 September 17 puts on the iShares MSCI Hong Kong Index exchange-traded fund for $0.80. An equal-sized block of the June 16 puts was sold at the same time for $0.15.

Volume was below open interest in June but not September, which indicates that an existing position was rolled from one strike to the other. The move let the investor obtain an additional three months of downside protection at a higher strike price. It cost $0.65.

The EWH is trading at $18.23, up 0.22 percent today and 19 percent in the last three months. It's been surging as traders anticipate looser monetary conditions in China and bet that the global economy will recover from the European debt crisis.

Given that run, it makes sense for today's trader to adjust his or her protection now. See our Education Section for more hedging strategies.

Overall option volume in the fund is 11 times greater than average, with puts outnumbering calls by 34 to 1.

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