Call Volume Spikes as EEM Shares Hit New High

Call volume has accelerated on the iShares MSCI Emerging Markets ETF (EEM) amid the ETF's strong technical performance

Mar 21, 2017 at 2:23 PM
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iShares MSCI Emerging Markets ETF (EEM) call options are trading at nearly two times what's typically seen at this point in the day. This call-skew is relatively rare for EEM options traders, per current open interest levels. Specifically, 4.2 million EEM puts are presently outstanding, versus 1.9 million calls. Nevertheless, with EEM shares last seen trading down 0.9% at $39.65 -- after earlier notching a new annual peak of $40.23 -- around 155,000 calls have crossed the tape so far, compared to 118,000 puts.

EEM Options Traders Target Out-of-the-Money April 40.50 Call

Most active is EEM's April 40.50 call, where more than 72,000 contracts have changed hands. However, it's not clear whether positions are being opened or closed, considering this strike is home to the exchange-traded fund's (ETF) top open interest position, with 156,000 contracts outstanding. Nevertheless, data from the major options exchanges confirms significant buy-to-open activity here, with more than 25,000 new positions purchased in the past week alone.

EEM options april open interest configuration

Short Sellers Could Be Hedging Against a Bigger EEM Surge

While some of the activity is likely a result of "vanilla" options traders betting on a breakout to new highs by expiration at the close on Friday, April 21, it's possible those short emerging market shares have been hedging their bearish bets with the out-of-the-money calls, too. Short interest on EEM, specifically, jumped 29.3% in the two most recent reporting periods to 117.09 million shares -- the most since mid-December.

EEM Options Pricing in Relatively Low Volatility Expectations

Regardless, now appears to be an affordable time to purchase premium on EEM's short-term options. While the ETF's Schaeffer's Volatility Index (SVI) of 14% ranks in the 6th annual percentile, its 30-day at-the-money implied volatility of 15.8% is docked below 86% of all comparable readings taken in the past year. Summing it all up, low volatility expectations are currently priced into EEM's near-term options.

Seasonal Tailwinds Could Boost EEM Shares Even Higher

Looking at the charts, the iShares MSCI Emerging Markets ETF (EEM) has added nearly 17% since taking a brief trek south of its 320-day moving average in mid-December. What's more, EEM shares just wrapped up their best week since July -- adding 3.9%, after the U.S. Federal Reserve reiterated its intention to raise interest rates at a gradual pace -- and have historically performed best in March and April since the ETF's inception.
 

 

EEM shares daily trading chart

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