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December 6, 2012  Thu 11:09 AM CT

EEM: SEE CHART GET CHAIN FIND STRATEGIES
Traders are selling puts in iShares Emerging Markets Fund as it continues to move higher.

There is considerable options action in the EEM this morning, but most of the volume is below open interest and could be opening or closing transactions. One trade that does stand out is the December 42.50 puts, the regular monthly options that expire in two weeks.

A trader sold 9,000 of those contracts for the bid price of $0.72 in volume was almost twice the open interest at the strike and therefore a new position, according to optionMONSTER's scanners. The put seller is betting that the EEM will remain above the $42.50 strike price in the coming weeks. (See our Education section)

Yesterday we noted a large purchase of a February put spread, so it appears that big traders are looking for the EEM to hold up in the next few weeks but possibly get hit by the so-called fiscal cliff into the beginning of 2013.

The EEM is up 0.47 percent to trade at $42.54. The exchange-traded fund is within yesterday's range but today is on pace for the highest close since mid-April.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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