EWZ – iShares MSCI Brazil Index ETF – A long strangle enacted on the EWZ, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of publicly traded securities in the aggregate in the Brazilian market as measured by the MSCI Brazil Index, indicates one options investor is expecting greater volatility in the price of the underlying fund through December expiration. Shares of the EWZ are up 1.00% to $64.17 just before 12:40 pm (ET). The strangle-player appears to be positioning for a dramatic move in the price of the fund’s shares in the next seven months. The investor purchased 5,000 puts at the December $60 strike for a premium of $5.92 apiece, and picked up 5,000 calls at the higher December $72 strike for a premium of $3.73 each. Gross premium paid for the strangle amounts to $9.65 per contract. If shares of the EWZ trade within the range of the strike prices described through expiration, the investor will lose the full amount of premium paid for the trade. However, if shares of the fund shift significantly the investor may walk away with substantial gains. Shares of the underlying stock must surge 27.25% for the trader to start to accrue profits above the upper breakeven price of $81.65, or the price of the fund must plummet 21.53% from the current value in order for the investor to make money beneath the lower breakeven price of $50.35, before December expiration.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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