Market News

December 2, 2016  Fri 12:36 PM CT

A large trade is positioning for a possible drop in a global exchange-traded fund ahead of this weekend's Italian referendum.

On Sunday Italy will vote on amendments to its constitution that would reform the authority of parliament. Prime Minister Matteo Renzi has vowed to resign if the legislation is rejected.

Against this backdrop of uncertainty, the iShares MSCI EAFE Index Fund saw the purchase 14,471 February 53 puts in one print for $0.66 and $0.67 today. This is clearly a new position, as open interest in the strike was only 1,583 contracts before the trade occurred.

The fund is composed of international equities outside of the United States and Canada. Many of its largest holdings are companies based in Europe, where equities would be affected by sharp moves in the euro depending on the outcome of Sunday's vote.

Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. (See our Education section)

EFA is up 0.13 percent to $56.64 this afternoon but is down 4 percent in the last three months. Puts outnumber calls by a bearish 7-to-1 ratio so far today.

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