Brexit Option Bets Roll In on FXB and EWU

ETFs FXB and EWU are trading in the red right ahead of another Brexit vote

Mar 12, 2019 at 2:38 PM
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Exchange-traded funds (ETF) Guggenheim CurrencyShares British Pound Sterling Trust (FXB) and iShares MSCI United Kingdom ETF (EWU) are in focus as traders bet on today's key Brexit vote. The currency-focused FXB was last seen trading down 0.4% at $126.89, and put options are popular, while EWU shares are 0.2% in the red, trading at $32.52, with one notable put trade crossing today.

Starting in FXB's options pits, roughly 2,200 puts have traded, compared to a daily average of just 776, while more than doubling call volume. Seeing the most attention by far is the April 125 put, where almost all the activity has taken place today, aside from some likely closing action at the June 128 call. Those buying to open the April puts would be betting on the Sterling tracking ETF breaching the $125 mark by expiration at the close on Thursday, April 18.

Interestingly, there had been unusual call buying on the security coming into today, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Traders at these exchanges bought to open 3.04 calls for every put during the past 10 days, putting this ratio just 4 percentage points from an annual high. From a broader view, total options open interest on the currency ETF is at a 52-week high.

pound etf chart

Turning to EWU, options volume most of the time is nearly nonexistent, but in recent weeks there's been a surge in call buying. Again looking at ISE, CBOE, and PHLX data, 325 puts were purchased, compared to just 10 calls, driving the security's Schaeffer's put/call open interest ratio (SOIR) to an extremely put-skewed 7.22 -- 9 percentage points from an annual peak.

There's also been sell-to-open activity at the April 32 put, which saw the largest increase in open interest during the past two weeks. These traders would be expecting the $32 level to act as support. Peak open interest, meanwhile, resides at the April 29 put, where a mix of buying and selling has taken place.

In today's trading, traders seem to be buying to open EWU's March 32.50 put, apparently expecting more downside for the ETF through week's end. To be sure, the 200-day moving average seems to be acting as strong resistance, and British Prime Minister Theresa May's Brexit plan faces an uncertain future.

ewu etf price


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