2 ETFs Catching Options Heat Ahead of 'Brexit' Vote

Ahead of the June 23 "Brexit" referendum -- which could see the United Kingdom (U.K.) vote itself out of the eurozone, if recent polls are correct -- exchange-traded funds (ETFs) iShares MSCI United Kingdom ETF (EWU) and SPDR EURO STOXX 50 (FEZ) are feeling the heat. Both funds are flirting with two-month lows, and options have been flying off the shelves at a rapid-fire rate.

EWU option open interest is at an annual high, with roughly 1.31 million contracts open, about evenly split between puts and calls. What's more, total options volume hit an annual peak on Friday, with roughly 68,000 contracts traded. The most popular option across all series is the July 16 call, with more than 35,000 contracts outstanding. The July 15 strike is runner-up, with more than 25,000 puts and 20,000 calls in residence.

So far today, EWU puts are outpacing calls, trading at about 1.4 times the average intraday clip, and the ETF's 30-day at-the-money implied volatility hit a 52-week high. Most of the action has transpired at the July 15 put, where it looks like speculators are buying the contracts to open to bet on a drop south of $15 -- into territory not charted since March -- by the close on Friday, July 15, when the options expire. However, EWU's Schaeffer's Volatility Scorecard (SVS) rests at a low 9, indicating the ETF has tended to make undersized moves in the past year, relative to what the options market has priced in.

Outside of the options pits, short sellers have bombarded the U.K.-exposed fund, which has dropped more than 5% in the past week to sit at $15.43. Short interest on iShares MSCI United Kingdom ETF (EWU) surged 76.2% during the past two reporting periods.

Meanwhile, FEZ short interest more than doubled during the past reporting period, with roughly 4.3 million shares sold short. Furthermore, option buyers are ramping up their bearish exposure.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the ETF's 10-day put/call volume ratio sits at 1.8, indicating nearly two puts bought to open for each call during the past two weeks. This ratio is higher than 78% of all others from the past year, pointing to a healthier-than-usual appetite for bearish bets over bullish of late.

However, like EWU, FEZ sports a relatively low SVS of 9, indicating the fund hasn't been as volatile as option players expected during the past year. On the charts, the SPDR EURO STOXX 50 (FEZ) ETF has surrendered 5.6% in the past week, last seen at $32.01.

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