Options Traders React to Spain, Turkey Political Drama

Options trading has ramped up on the two global ETFs recently

by Karee Venema

Published on Oct 9, 2017 at 12:09 PM
Updated on Oct 9, 2017 at 12:16 PM

The iShares MSCI Spain Capped ETF (EWP) sold off earlier this month, after Catalonia voted to secede from Spain in an Oct. 1 referendum. While the exchange-traded fund (ETF) has since stabilized, the iShares MSCI Turkey ETF (TUR) is tumbling today on news the U.S. and Turkey have suspended visa operations for each other's citizens amid rising diplomatic tensions between the two nations. With both global funds trading near key technical levels, we decided to take a closer look at how options traders are reacting to EWP and TUR.

Spain ETF Bounces Back After Catalonia Shocker

EWP started the month of October falling 1.8% in the wake of Catalonia's vote for independence, eventually testing support near $32 -- a 23.6% Fibonacci retracement of its mid-2016 to mid-2017 surge. The fund took a sharp bounce from this region, which is also home to EWP's late-April bull gap highs, and was last seen trading at $33.05.

ewp daily chart oct 9

And while EWP remains up 24.7% year-to-date -- and not far from its Aug. 8 two-year high of $34.82 -- options traders have been bracing for more short-term headwinds. The ETF's October 31 put has seen the biggest rise in open interest over the past 10 days, with more than 1,400 contracts added, and data from the major options exchanges confirming mostly buy-to-open activity here.

More broadly, both call and put open interest on EWP are at an annual high of 20,773 contracts and 18,144 contracts, respectively. This is mostly due to the Sept. 21 initiation of several spreads involving similarly sized blocks of October 33 puts and 34 calls, with the activity likely tied to stock.

Options Traders Eye Bigger Losses for Turkey ETF

TUR has been in a downtrend since hitting a two-year high of $47.13 on Sept. 1, down 16.2%. Today, the shares have plunged 5.2% to trade at $39.48, slicing through the round $40 region -- home to a 38.2% Fibonacci retracement of their 2017 rally -- and are on track to close south of their 200-day moving average for the first time since April 7.

TUR daily chart oct 9

Below this is the $38 region, which is a 50% retracement of the recent rally, and today's options traders are bracing for a breach of this level over the next two weeks. Amid relatively low absolute volume, TUR puts are crossing at five times what's typically seen at this point in the day.

The October 38 put is most active, and it looks like new positions are being purchased here. While it's possible some of this activity is bearish in nature, it could also be representative of speculators protecting paper profits with an options hedge, considering TUR shares are still up 21.6% year-to-date.

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