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Three-way play in emerging market ETF

Chris McKhann (chris.mckhann@optionmonster.com)

The biggest trade of the day so far comes in the iShares Emerging Markets Fund, which remains tightly correlated with the S&P 500.

More than 85,000 EEM options have changed hands, with most of that in a three-way combination trade. optionMONSTER's systems show that a trader bought 20,000 December 43 calls for $2.95 and sold the same number of December 50 calls for $0.75. At the same time,  20,000 December 37 puts traded for $2.55.

While those puts did go off in the middle of the bid/ask spread, they do appear to have been sold. The volume at all three strikes was more than open interest.

The trade is clearly long-term bullish, looking for the EEM to push back up toward the 2007 highs in the coming year. The trader is also willing to buy shares of the fund if it is below $37, which is just above the support that has been in place for the last three years.

The EEM is down 0.47 percent today at $41.44. The exchange-traded fund gained last week after bouncing off support at $40 and is now not far from the resistance at $42 that has been holding up for the last three months.

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