Turkey ETF Under Pressure Despite Emergency Rate Hike

An emergency interest-rate hike has done nothing to stabilize the Turkish lira

by Josh Selway

Published on May 24, 2018 at 11:41 AM
Updated on Jun 24, 2020 at 10:16 AM

Turkey's economy has been grappling with rising inflation and a rapid decline in the lira. As such, Turkey's central bank on Wednesday stepped in and dramatically raised interest rates at an emergency meeting -- but the lira has only continued to fall. All this uncertainty has dragged down the iShares MSCI Turkey ETF (TUR), which yesterday hit an annual low of $30.61 before making a sharp recovery and eventually closing in the black. But the exchange-traded fund (ETF) is falling again today, last seen trading down 7.4% at $31.12.

Interestingly, data suggests options traders had been betting on the $30 level acting as a floor for TUR. Peak open interest resides at the June 30 put, where more than 9,000 contracts were seemingly sold to open back on May 15. These put writers are hoping the ETF holds above the round-number mark for another three weeks, with the front-month options due to expire at the close on Friday, June 15.

For what it's worth, there's definitely been an appetite for long TUR puts, too, since its 10-day put/call volume ratio is 2.42 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). But, not surprisingly, buying premium has become quite expensive during these volatile times, with the 30-day at-the-money implied volatility today rising to a 52-week high of 44%.

Some traders looking to bet on an extended slide have turned to shorting the ETF. By the numbers, short interest rose 14.5% in the last two reporting periods. TUR's short interest ratio now stands at 5.0, meaning it would take short sellers a week to buy back their positions, based on average daily volumes. The ETF is already down almost 29% in 2018.

 

TUR ETF chart


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