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November 12, 2013  Tue 4:14 AM CT

EEM: SEE CHART GET CHAIN FIND STRATEGIES
A gigantic put trade is apparently looking for a drop in the iShares Emerging Markets Fund.

optionMONSTER systems show that 790,000 EEM options changed hands yesterday, making it second in total volume only to only the SPDR S&P 500 Fund. Amazingly, most of that volume is in one trade.

A trader sold 210,953 November 42.50 puts for $1.60 against previous open interest of 238,704. At the same time, he or she bought 248,663 December 41.50 puts for the ask price of $1.55 in volume well above that strike's open interest of roughly 76,000, so it is a new position.
 
Although it is possible that these puts are a hedge on long stock, it is unlikely because they are in the money. So it appears that this trader is rolling a bearish position out a month and to a lower strike price. (See our Education section)

The EEM fell 0.51 percent to $40.95 yesterday, its lowest close since the end of September. The exchange-traded fund was testing $44 just three weeks ago.
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Real vs. Synthetic

We now know that there are two ways of creating a call position, a put position, and a stock position. We can simply use the actual real security or we can recreate it synthetically. We can create these positions in both long and short forms and this ability sets up an interesting scenario--an arbitrage!

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