September 25, 2009 at 16:22 PM EDT
Japan Bear Goes Defensive on Nikkei
Today’s tickers: EWJ, V, JPM & EFA EWJ  - A massive options position has been initiated on the Japan exchange-traded fund this morning amid a slight 0.3% increase in shares to $10.13. The 150,000 contracts exchanged on the EWJ today are likely the work of one investor who was probably also responsible for another 100,000 contracts traded late yesterday afternoon. The trader appears to have sold 75,000 calls at the January 2011 12 strike for a premium of 35 cents apiece in order to partially finance the purchase of 75,000 puts at the March 2010 10 strike for 65 cents each. The net cost of the spread amounts to 30 cents per contract for a total cost of $2,250,000. Perhaps the investor established the trade to protect a long position in the underlying stock because he is concerned by prospects for price weakness through expiration in March. If this is the case, downside protection will kick in if the price of the fund slips 4% to breach the breakeven point at $9.70. Interestingly, another 100,000 contracts were exchanged at the same strike prices during yesterday’s trading session for a net cost of 28 cents apiece. Both the calls and puts traded to the middle of the market making it difficult to discern magnitude. However, we believe it is likely the investor has increased the size of the protective stance. This would leave the trader short 125,000 calls in the January 2011 contract and long 125,000 puts in the March contract. – iShares Japan Index Fund – V  - Investors piled into put options on the electronic payments network, pushing the global financial services brand onto our ‘most active by options volume’ market scanner. Shares declined as much as 5.5% this morning to $69.68, but have since recovered slightly to stand 3% lower at $71.13. Traders bracing for further bearish momentum in the stock vied for near-term puts in the October contract. The most pessimistic individuals picked up 1,000 puts at the October 65 strike for 59 cents each. The October 67.5 strike had approximately 6,000 puts purchased for an average premium of 1.27 apiece. Finally, the now in-the-money October 72.5 strike had nearly 3,000 put options coveted by bearish traders for about 3.16 per contract. The rise in demand for put options fueled the 20% rise in option implied volatility experienced by Visa today. The stock’s implied volatility reading shifted up from a…
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