The Big Bullish Options Bet on Global Stocks

Now is the time to buy short term call options on EFA

Aug 24, 2017 at 9:51 AM
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Options traders blasted the iShares MSCI EAFE ETF (EFA) on Wednesday, with 178,341 contracts on the tape -- two times what's typically seen, and volume settling in the 93rd annual percentile. Most of the action occurred on the call side, with 98,840 contracts traded versus 79,501 puts. By the looks of it, one option trader in particular made a big bet on more upside for global stocks through year's end.

Specifically, 30,210 September 66 calls -- originally opened on May 5, according to Trade-Alert -- were sold to close, and used to fund the purchase of 34,025 December 67 calls. By rolling this bullish bet up and out, the options trader expects EFA to surge back above $67 by December options expiration. The exchange-traded fund (ETF) most recently explored territory north of here earlier this month, when it hit a two-year high of $67.54 on Aug. 1. 

This trend toward calls is nothing new for EFA options traders, with 2.93 million calls and 2.07 million puts currently open. Plus, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the fund's 10-day call/put volume ratio of 1.00 ranks in the 81st annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.

Now appears to be an attractive time to purchase premium on EFA options, too, especially calls. While the fund's Schaeffer's Volatility Index (SVI) of 9% ranks in the 15th annual percentile -- suggesting low volatility expectations are being priced into short-term options -- its 30-day at-the-money implied volatility skew of 38.7% ranks just 9 percentage points from a 52-week peak. What this means is that call options have rarely been cheaper relative to puts over the past year.

Technically, EFA shares have been charting a path higher since bottoming at an annual low of $56.10 in mid-November -- up 18.5%, as net inflows in the fund increased by $10.94 billion, according to ETF.com. And while the shares have pulled back from their early August highs, they found a foothold in $65.80-$66 region, home to a 23.6% Fibonacci retracement of their second-quarter surge and their 80-day moving average, last seen trading at $66.50.

efa etf daily chart august 24

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