German fund draws cheap upside bet
David Russell | email@example.com
optionMONSTER's Heat Seeker monitoring system detected the purchase of 5,000 July 20 calls on the iShares MSCI Germany Index fund for $0.40. Volume is more than 10 times open interest in the strike.
The investor is now positioned to benefit from a rebound in the fund, whose largest holdings include Siemens, BASF, and SAP. It's currently attempting to hold its lowest level since mid-December.
The EWG is down 0.21 percent to $18.78 in morning trading and 13 percent in the last month. Investors have been selling German stocks amid worries about the European debt crisis and slowing demand from China.
But some investors may think expectations are too negative and expect a major rally if the situation improves. The Wall Street Journal, for instance, reported that Berlin may allow increased steps to bail out weak countries such as Italy and Spain. Today's call buyer is essentially placing a cheap bet on such a development happening, letting him or her capture the upside while limiting the amount of capital at risk.
Overall option volume is almost twice the average amount in the fund, with calls outnumbering puts by 37 to 1.