Options Trading News

July 9, 2013  Tue 2:45 AM CT

A huge trade is counting on limited upside in the iShares Emerging Markets Fund.

optionMONSTER systems show that a trader bought 57,000 August 40.50 calls for the ask price of $0.19 and sold the same number of August 39 calls for $0.52 yesterday. The volume was more than twice the previous open interest at each strike, indicating that this is new positioning.

This strategy is known as a credit spread and takes in $0.33, which the trader will keep as profit if the EEM remains below $39 at expiration in mid-August. The maximum potential loss is $1.17 if it is above $40.50 at that time. (See our Education section)

The EEM was up fractionally yesterday to close at $37.39. The exchange-traded fund was above $44 in early May but fell to $36.16 two weeks ago, its lowest intraday price since November 2011.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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