The Japanese stock market rallied sharply with U.S. equities after the presidential election, but traders apparently believe that it may continue its recent pullback.
The WisdomTree Japan Hedged Equity Fund, which tracks the Nikkei index while adjusting for fluctuations in the yen, has been falling since hitting a 52-week high of $51.82 on Dec. 15. Our monitoring program found three strikes with large bearish trades in less than 2 minutes on Friday:
- 4,327 February 46 puts were bought at the same second for $0.40-$0.41 against open interest of 123 contracts,
- 5,252 February 47 puts were purchased at the same second for $0.57 below open interest of 6,001 contracts,
- 2,391 January 48.50 puts bought at the same second for $0.39 against open interest of 2 contracts.
Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. (See our Education section)
DXJ rose 0.24 percent to $49.54 on Friday and is up 16 percent in the last three months. Overall option volume in the fund was about average, but puts outnumbered calls by a bearish 6-to-1 ratio.