RSX Options Volume Explodes as U.S.-Russia Tensions Resurface

RSX options traders are bracing for a sharp September retreat

Aug 31, 2017 at 2:31 PM
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Russia popped back into the headlines today, after the U.S. State Department said it will require Moscow to close its consulate in San Francisco and annexes in Washington, D.C. and New York -- amplifying tensions between the two countries after Congress issued new sanctions against Russia earlier this month. Nevertheless, the VanEck Vectors Russia ETF (RSX) is on track to end its historically weak month of trading with a win, and options traders are betting on even bigger long-term moves for the exchange-traded fund (ETF).

At last check, RSX was trading up 1.9% at $21.35, and pacing toward a 6.8% month-to-date gain. This is much stronger than the 3.1% loss the shares have averaged in August since their inception, according to date from Schaeffer's Quantitative Analyst Chris Prybal -- the worst month for the fund that provides exposure to Russian stocks. However, the shares are still trading south of $21.50, a region that contained RSX in early April and sits 20% above the fund's pre-election lows near $17.75.

Amid today's accelerated options trading -- more than 18,500 contracts have changed hands, five times the expected intraday rate -- speculators are targeting the fund's longer-term trajectory. Most active is the January 2018 18-strike put, with one block of 7,500 contracts apparently bought to open and tied to shares.

Elsewhere, it looks like one trader initiated a long straddle by buying to open matching 3,000-contract blocks of January 2019 21-strike calls and puts for an initial cash outlay of $1.44 million (number of contracts * $4.80 combined premium paid * 100 shares per contract). This is the most spread strategist stands to lose, should RSX stay near $21 over the next 17 months. Profit, on the other hand, will build on surge above the upper breakeven rail of $25.80 (strike plus net debit) or a breach of the lower breakeven rail of $16.20 (strike less net debit.)

Short-term options traders, meanwhile, have shown a clear preference for puts over calls, per the fund's top-heavy Schaeffer's put/call open interest ratio (SOIR) of 1.92 -- in the 74th annual percentile. Peak front-month open interest of 11,804 contracts is found at the September 15 put, and Trade-Alert indicates mostly buy-to-open action. In other words, put buyers anticipate a move down to $15 by expiration at the close on Friday, Sept. 15 -- territory RSX shares haven't seen since March 2016.

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