Option Bear Eyes More Downside for Hong Kong ETF

One speculator just halved the cost of entry on December EWH put options

Sep 19, 2019 at 11:27 AM
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Options are active early today on the iShares MSCI Hong Kong ETF (NYSEARCA:EWH), with roughly 52,000 puts changing hands in the first hour of the session -- representing 16 times the expected intraday volume, according to Trade-Alert. A closer look at the most active EWH option strikes today reveals that most of the put activity on this Hong Kong-based exchange-traded fund (ETF) is attributable to one deep-pocketed player who appears to be upping the ante on a bearish trade.

Specifically, 26,000 contracts apiece have crossed the tape at the EWH December 24 put and December 23 put, establishing these back-month strikes as far and away the most active options on the session. (Third place goes to the December 25 call, which has generated volume of only about 5,000 contracts).

Today's volume at the EWH December 24 put accounts for the majority of the 28,665 contracts in open interest, and the action here appears to be liquidations of these narrowly in-the-money options. Conversely, the December 23 put carries open interest of just 2,944 contracts. With volume outstripping open interest by such a wide margin, we can assume new positions are being opened here today.

Since the matching blocks of 26,000 contracts apiece traded simultaneously at these two strikes earlier, it looks as though a trader is rolling down the December puts to a lower strike. This type of position adjustment allows an options player to further leverage a winning position.

For context, those December 24 puts were opened as recently as Sept. 13 for $1.00 apiece, and today's roll was accomplished by closing them out at $1.50 while buying the December 23 puts for $1.00 -- effectively trimming the net outlay on a continued EWH decline to $0.50 per contract.

On the charts, beleaguered EWH has skidded 3.5% lower so far this week to $23.44, after last Friday's pop was contained by its descending 50-day moving average. The ETF has been struggling to find its footing on the charts since a late-July breach of its 160-day trendline.

ewh daily stock chart

As for the Hong Kong Hang Seng Index (HSI), the regional benchmark settled today just north of its 40-day moving average -- marking a seventh consecutive close above this key trendline. However, the Hang Seng fell hard Tuesday after a short-lived stint above the 27,000 millennium level, and remains on shaky footing, technically speaking.


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