Options Trading News

June 4, 2013  Tue 2:14 AM CT

Global stocks received a vote of confidence yesterday from a big investor.

optionMONSTER's monitoring systems detected the sale of some 131,400 August 58 puts for $1.48 and the purchase of a similar number of July 60s puts for $1.93 in the iShares EAFE Index Fund. Volume was below open interest in the July contracts, indicating that an existing short position was closed and rolled forward in time.

The EFA rose 0.38 percent to $60.30 yesterday. The exchange-traded fund, which tracks stocks in Europe, Asia, and Australia, peaked over $64 earlier this month before pulling back along with the rest of the market.

Selling puts obligates the investor receive premium in return for agreeing to buy shares. The trader probably initiated the position earlier in the month when the fund was well above $60 but is rolling it to a lower strike now that the stock has dropped. Making the adjustment cost $0.45 but reduced by $2 the level at which the stock must be bought.

This way, the investor reduces the risk of being assigned shares. He or she probably thinks that it has little downside risk and wants to collect income without owning the fund. (See our Education for more on how to milk premium from the market using options)

EFA mostly owns European megacaps like Nestle, HSBC, and Novartis, but it also has a big slug of Toyota Motor.

Yesterday's put roll pushed total option volume in the fund the 5 times greater than average. It was the second-largest transaction in the entire market during the session.
Share this article with your friends


Premium Services

Education & Strategy

The art of trading

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.

View more education articles »