U.K. ETF Sees Unusual Options Volume After Brexit Extension

EWU options are flying off the shelves today

Apr 11, 2019 at 1:38 PM
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The European Union (EU) today granted Britain another extension to the Brexit deadline, pushing it from this Friday, April 12, to Oct. 31. Should Prime Minister Theresa May win lawmakers' approval for her Brexit plan before then, the U.K. can divorce the EU sooner, per a clause in the agreement. Against this backdrop, the iShares MSCI United Kingdom ETF (NYSEARCA:EWU) has seen unusual options activity today.

Specifically, the exchange-traded fund (ETF) has seen roughly 5,000 puts change hands -- five times the average afternoon pace. About half as many EWU calls have crossed the tape so far, but that's still four times the average rate of call volume for the fund. Both call and put volume are set for the 98th percentile of their annual range, should the current pace hold through day's end.

The May 34 call has seen the most activity, accounting for nearly all of the EWU call volume today. Most of the calls traded on the ask side of the tape, and intraday volume has exceeded open interest at the strike, pointing to buy-to-open action. By purchasing the calls to open, the buyers expect EWU to muscle atop $34 by the close on Friday, May 17, when the options expire.

Taking runner-up has been the May 33 put, with more than 2,300 contracts exchanged. However, most of the puts traded near the bid price, and it looks like traders are selling the contracts to open. May 33 put writers expect EWU shares to remain north of $33 through options expiration, at which point the puts will expire worthless and the sellers can pocket the premium received at initiation.

Today's bullish betting represents a change of pace for EWU options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio sits at 3.94, indicating speculators have bought to open nearly four EWU puts for every call in the past two weeks. What's more, this ratio is in the 74th percentile of its annual range, pointing to healthier-than-usual put buying of late.

At last check, the iShares MSCI United Kingdom ETF has shown little reaction to the Brexit extension, down 0.1% at $33.74. In fact, the fund has traded in a slim range of just 0.9 point so far today. From a longer-term perspective, EWU has rallied close to 19% since its Dec. 26 low of $28.41, but has struggled to surmount the $34 area -- home to multiple layers of resistance for the shares, including their 320-day moving average.

EWU ETF chart april 11

 

 

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