Put Players Blast EWI After Italy Election Uncertainty

The weekend election resulted in a hung parliament

Mar 5, 2018 at 2:54 PM
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German stocks closed higher today following the results of the company's weekend election. On the flip side, shares of the iShares MSCI Italy ETF (EWI) are trading down 0.5% today at $31.36 -- on track to extend their losing streak to a fifth straight session -- after Italy's election resulted in a hung parliament. Put volume has picked up on the exchange-traded fund (ETF) amid this recent retreat, although, with EWI holding above a key technical level, not all of this activity has been of the bearish kind.

Today, for instance, puts are trading at three times what's typically seen at this point in the day, albeit amid relatively low absolute volume Nevertheless, the June 31 put is most active, and it looks like traders may be selling to open new positions. Trade-Alert points to possible sell-to-open activity at the March 32 and April 31 puts in recent weeks, too.

If these traders are indeed put writers, it's possible they opened the positions to bet on a short-term floor for EWI shares. However, it's also likely they were betting on a post-election volatility crush, which would ideally let them buy back their options at a lower premium than they initially collected. After rising as high as 29.6% on Friday, the ETF's 30-day at-the-money implied volatility is docked at 22% -- in the 88th annual percentile.

There has been some bearish options activity, too. In the last two weeks, the June 35 put has seen the biggest rise in open interest, and data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) point to mostly buy-to-open activity here.

Looking closer at the charts, the sell-off in EWI shares is being contained near $31.15 -- a 23.6% Fibonacci retracement of the fund's rally from its November 2016 lows just below $21 to its late-January three-year high around $34.45, as well as its 140-day moving average. Longer term, the ETF is still maintaining a 27.9% year-over-year lead.

ewi daily chart march 5


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