Turkey Crisis Sparks Heavy Options Trading on Global ETFs

RSX and EEM have both taken a hit from Turkey's troubles

Aug 13, 2018 at 12:08 PM
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Global stocks have taken a hit recently due to the currency crisis in Turkey. As the Turkish lira cratered against the U.S. dollar last week, the VanEck Vectors Russia ETF (RSX) and the iShares MSCI Emerging Markets ETF (EEM) plummeted -- sparking accelerated options activity on each exchange-traded fund (ETF).

RSX Put Volume Spikes

The VanEck Vectors Russia ETF fell 3.5% on Friday, bringing its weekly loss to 7.7% -- its steepest since mid-April. The shares also tagged a new annual low of $19.53 in intraday action, but have bounced back today to trade up 1.3% at $19.84.

While RSX options volume is running at a slower-than-usual clip this morning, it surged to three times the expected daily pace on Friday, with 9,180 puts and 7,640 calls exchanged. Plus, on Thursday, RSX puts crossed at 11 times the average daily rate, with roughly 27,000 contracts traded. In fact, the single-day put/call volume ratio topped out at a 52-week peak of 31.77.

The October 19 and 20 puts have been in particular focus in recent sessions, where it looks like one trader on Thursday may have initiated a long put spread. The October 19 put was also popular on Friday, where it appears new positions were purchased, while bullish options traders likely bought to open September 19 calls.

EEM Trades at Lowest Level Since Late June

The iShares MSCI Emerging Markets ETF shed 2.1% Friday -- its biggest one-day loss since May 29. This downside is continuing today, with the fund off another 1.2% at $42.66, pacing for its lowest daily close since June 27.

Against this backdrop, put volume is running at two times what's typically seen at this point in the day, with nearly 200,000 contracts on the tape. Trade-Alert highlights the potential closing of 32,000 September 41/43 put spreads, while another trader may be initiating a three-way spread using weekly 8/31 42.50-strike and September 42.50 and 43 puts.

This influx of put activity runs counter to the trend seen among short-term options traders, per EEM's Schaeffer's put/call open interest ratio (SOIR) of 0.90 -- in the 1st annual percentile. In other words, near-term speculators have rarely been as call-skewed toward the ETF as they are now.

This could exacerbate technical troubles for EEM, as the hedges related to these bets unwind ahead of expiration. More specifically, peak front-month open interest is currently located at the just overhead August 45 call.



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