Huge show of support for global ETF
David Russell | [email protected]
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.