Market Vectors Russia ETF Trust (RSX) Bear Targets Multi-Year Lows

The Market Vectors Russia ETF Trust is lingering in five-year-low territory

Dec 23, 2014 at 10:04 AM
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Russia's woes have been fodder for the Street of late, and these troubles have been witnessed in the recent price action of the Market Vectors Russia ETF Trust (NYSEARCA:RSX) -- the largest exchange-traded fund (ETF) based on the country. Month-to-date, the ETF has shed 20.3% to trade at $15.58, and hit a five-year low of $12.50 one week ago. Speculators think there's more downside on the horizon, though, as evidenced by Monday's action in RSX's options pits.

Taking a quick step back, puts traded at 1.3 times the average daily pace on Monday. The vast majority of the day's action centered on RSX's January 2015 11-strike put, where two large blocks totaling 30,150 contracts were bought to open for $753,750 (number of contracts * $0.25 premium paid * 100 shares per contract).

This is the most the speculator stands to lose, should RSX settle above $11 at the close on Friday, Jan. 16 -- when the front-month contracts expire. Gains, meanwhile, will accumulate if the ETF is sitting below breakeven at $10.75 (strike less premium paid) at expiration -- territory not charted since February 2009.

Regardless, this trader was willing to pay up for her bearish bet. Not only did the Market Vectors Russia ETF Trust's (NYSEARCA:RSX) 30-day at-the-money implied volatility close at 67.2% yesterday -- in the 99th annual percentile -- but its Schaeffer's Volatility Index (SVI) of 67% rests higher than 88% of similar readings taken in the past year. Simply stated, premium on RSX's front-month options is relatively expensive at the moment.

 

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