Emerging markets are cumulatively supposed to make up a catch-all investment sector for investors seeking true growth in the next decade. If you have been watching the ticker tape of late, you will see that the emerging market sectors have not held up well at all. iShares MSCI Emerging Markets Index (NYSE: EEM) is the one ETF that encompasses the trend. You would not believe the PUT option trading that is there today. When you see action like this you would usually assume that someone is making major bets against the emerging markets or that they are hedging for massive downside. This may actually be something else.
The iShares MSCI Emerging Markets Index (NYSE: EEM) aims to track the MSCI Emerging Markets Index, but it actually does not invest in every single index company. Nearly 60% of its near-$37 billion in assets is allocated to Asian equities. Latin American shares make up about 21% of assets, and almost 20% of its funds are invested in emerging Europe and Africa. At last look, the EEM included 800 of the 912 index stocks.
Usually we see something close to 50,000 contracts or more in a day trade in the Put options. Not today. In the July-2011 Put Options we have seen over 259,000 contracts trade and the open interest of the corresponding contracts is over 530,000 contracts. The table below will show you what you need to know, and that was at a 12:10 PM EST time stamp.
| JULY-PUT | Contracts | Open Int. |
|---|---|---|
| $35.00 | 2,459 | 4,217 |
| $36.00 | 15 | 1,248 |
| $37.00 | 60 | 9,387 |
| $38.00 | 4,664 | 9,192 |
| $39.00 | 98 | 4,560 |
| $40.00 | 2,834 | 30,973 |
| $41.00 | 14,278 | 24,318 |
| $42.00 | 65,095 | 100,785 |
| $43.00 | 58,258 | 39,263 |
| $44.00 | 8,434 | 40,163 |
| $45.00 | 45,424 | 125,448 |
| $46.00 | 7,216 | 61,165 |
| $47.00 | 51,135 | 81,534 |
| Sum | 259,970 | 532,253 |
Joe Kunkle of OptionsHawk.com noted to us today, “Big blocks of July puts traded in Emerging Markets (EEM) just after 10:15am, the $47, $43, and $42 strikes, mainly sellers, either to close or willing to be long. Traders will sell puts at key support levels when volatility spikes, and since those blocks, volatility has been fading hard in the EEM.” In short, this is not your normal volume spike.
The emerging market shares ETF is down 1.4% at $45.00 today, which is actually down a tad less than the broader US market. The 52-week trading range is $36.76 to $50.43. Many investors are looking back much farther now for past valuations and the peak in the EEM was close to $55.00 back in 2007 before the recession took control.
JON C. OGG
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