Today's tickers: EEM, MRVL, BCSI & XRT
iShares MSCI Emerging Markets Index ETF (EEM) –
A number of large-volume spreads on the emerging markets fund this
morning signal investor pessimism on the sector through February
expiration. Shares of the EEM, an exchange-traded fund designed to
measure equity market performance in the global emerging markets, fell
0.50% to $47.62 by 12:20pm in New York. Three-legged bearish spreads,
wherein investors sold out-of-the-money calls to partially finance the
purchase of put spreads, are popular with strategists populating the
EEM today. The larger of two similar bearish plays involved the sale of
15,500 calls up at the February $52 strike for a premium of $0.05 each,
purchase of the same number of puts at the February $47 strike at a
premium of $0.96 apiece, and the sale of 15,500 puts at the lower
February $43 strike for premium of $0.19 each. The net cost of the
transaction amounts to $0.72 per contract and positions the responsible
party to profit should shares in the EEM decline another 2.80% from the
current price of $47.62 to breach the effective breakeven point to the
downside at $46.28 ahead of February expiration day. Maximum potential
profits of $3.28 per contract are available to the trader should shares
in the ETF drop 9.7% lower to trade below $43.00 before the contracts
expire next month. A like-minded tactician established a similar
spread, but sold call and put options at closer-to-the-money strikes to
further reduce the premium required to take a bearish stance on the
fund. This options player sold 14,000 of the February $50 strike calls,
picked up 14,000 puts at the February $47 strike, and sold the same
number of puts at the February $43 strike. The trader paid a net
premium of $0.24 per contract and breaks even on the spread if the
EEM's shares decline 1.80% to trade below $46.76 ahead of expiration.
Maximum potential profits of $1.76 per contract pad the investor's
wallet should shares dip below $45.00 at expiration next month. Selling
calls at the February $50 and $52 strikes reduces the cost of the
bearish spreads, but is not a riskless tactic to employ. Investors are
on the hook to deliver huge quantities of the underlying stock if the
calls land in-the-money by expiration day. But, this is a risk they are
willing to take perhaps because shares of the fund have not traded
above $50/$52 since the middle of 2008.
Marvell Technology Group, Ltd.