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June 3, 2013  Mon 12:19 PM CT

Japanese stocks have pulled back since starting the year with a monster rally, but now some bulls are coming back.

optionMONSTER's Heat Seeker monitoring system detected heavy call volume in two exchange-traded funds linked to the country's equity markets. First, they targeted the WisdomTree Japan Hedged Equity Fund (DXJ), buying the July 50 calls for $0.70 and selling the July 55s for $0.15. Some 20,000 traded in both, more than 6 times previous open interest.

They paid $0.55 to open this vertical spread and will collect $5 if the fund closes at or above $55 on expiration. That's a potential gain of 809 percent from a 25 percent move in the underlying index. (See our Education section for more on how to harness the leveraging power of options.)

The DXJ is down 3.62 percent to $44.60 in afternoon trading. It appreciated more than 30 percent between mid-December and mid-May as the Japanese market broke out of a multi-decade slump but has been falling sharply since.

The iShares MSCI Japan Fund, a competing product with the DXJ, grabbed attention less than an hour later. This time buyers kept it simple, snapping up about 11,000 September 12 calls for $0.15 and $0.16. They also bought the Weekly 10.50 calls expiring this Friday for $0.24 to $0.26.

The EWJ is off 2.21 percent to $10.60 and has performed similarly in recent months as the DXJ.

Total option volume is 5 times greater than average in DXJ, with calls outnumbering puts by 12 to 1. The EWJ's activity is only slight above normal amounts.
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