EEM – iShares MSCI Emerging Markets Index ETF – Contrarian options activity on the EEM, an exchange-traded fund designed to produce investment results that correspond to the price and yield performance of the MSCI Emerging Markets Index, points to optimism the fund’s shares may rebound sharply by July expiration. Shares of the emerging markets ETF are down 1.10% to stand at $37.68 just before 3:30 pm (ET). One bullish strategist positioning for a rally in the next couple of months purchased a ratio call spread on the fund. The investor picked up 3,000 calls at the July $38 strike for an average premium of $2.05 each, and sold 6,000 calls at the higher July $41 strike for a premium of $0.73 apiece. The net cost of the transaction amounts to $0.59 per contract. The trader responsible for the ratio spread makes money as long as shares of the EEM rally 2.41% to surpass the effective breakeven price of $38.59. Maximum available profits of $2.41 per contract pad the investor’s wallet if, by expiration, shares of the emerging markets fund rally 8.80% to $41.00. Shares of the EEM last traded at $41.00 back on May 4, 2010.
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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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