FEZ Options Traders Take Protective Stance Ahead of French Election

The first round of the French presidential election will be held this Sunday, April 23, with polls pointing to a close race between far-right candidate Marine Le Pen and centrist Emmanuel Macron. The uncertainty surrounding the results has put pressure on the SPDR Euro Stoxx 50 ETF (FEZ) -- an exchange-traded fund (ETF) that tracks the performance of large-cap eurozone companies. Since hitting an annual high of $36.61 on March 28, FEZ has shed 3% to trade at $35.63. Options traders have been swirling FEZ, too, with one trader in particular placing a seven-figure bet on stiffer near-term headwinds.

Specifically, FEZ on Monday saw roughly 56,000 put options traded -- 10 times the average daily volume. Nearly all of the action was due to symmetrical 28,000-contract blocks that simultaneously traded at the weekly 4/28 33- and 35.50-strike puts shortly after lunchtime. According to Trade-Alert, the lower-strike puts were sold for $0.10 apiece and the higher-strike puts were bought for $0.75 each, as one options trader initiated a long put spread for an initial net debit of $1.82 million ($0.65 premium paid per each spread * number of contracts * 100 shares per contract).

By initiating the bearish spread, the trader expects FEZ to settle right at $33 at next Friday's close, when the weekly options expire. Should the shares hit the "sweet spot," the speculator can pocket the maximum potential reward of $1.85 per spread (difference between the two strikes, less the net debit), or $5.2 million. Breakeven is located at $34.85 (bought strike less the net debit), while risk is limited to the initial cash outlay, should FEZ shares settle next week at or above $35.50.

This protective stance just echoes the recent trend seen in FEZ's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the ETF's 10-day put/call volume ratio of 0.85 ranks in the 73rd annual percentile. Simply stated, puts have been bought to open relative to calls at a faster-than-usual clip.

More broadly, though, calls hold a commanding lead among all FEZ options. While call and put open interest are both perched at their highest levels of the last 52 weeks, 662,165 FEZ calls are currently open, compared to 297,669 puts. Meanwhile, near-term volatility expectations for the SPDR Euro Stoxx 50 ETF (FEZ) are lingering near their highest level since last June's Brexit vote, per the ETF's 30-day at-the-money implied volatility, last seen at 32.6% -- in the 96th percentile of its annual range.