Turkey Turmoil Triggering Run on ETF Put Options

Trump called for "big sanctions on Turkey," sending TUR shares spiraling

Oct 14, 2019 at 2:37 PM
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The iShares MSCI Turkey ETF (TUR) is in the red today, after President Donald Trump tweeted, "Big sanctions on Turkey coming!" The threat comes after a Turkish invasion of northern Syria, and following the president's orders to withdraw U.S. troops from the area. Against this backdrop, the exchange-traded fund (ETF) is already set for its worst month in over a year, and TUR put options are flying off the shelves today.

The fund has seen more than 8,900 puts cross the tape so far today -- six times its average afternoon volume. For comparison, TUR averages daily put volume of fewer than 1,850 contracts. As such, today's put volume is pacing for the 99th percentile of its annual range. TUR call volume, meanwhile, is lukewarm at fewer than 550 contracts exchanged thus far.

Digging deeper, it looks like one options trader may be cashing in their chips in the wake of the Turkey ETF's slide. The October 24 put is most active by a mile today, with two blocks totaling nearly 6,000 contracts traded around 10:30 a.m. ET today. The options crossed around the bid price, and with October options set to expire at the close on Friday, Oct. 18 -- not to mention TUR shares are trading south of $24, putting the puts in the money -- it's likely the puts were sold to close.

Meanwhile, it appears other speculators are expecting more downside for the ETF in the weeks ahead. A block of 1,000 November 25 puts -- the second-most popular option today -- traded at the ask price of $2.45 earlier, and data suggests they were bought to open. If so, the buyer will profit the lower TUR sinks beneath $22.55 (strike minus premium paid) before November options expiration.

The fund hasn't been south of $22 since a late-May bull gap, prior to which TUR was trading at year-to-date lows. More recently, the ETF ran into a wall in the $26.50-$27 region -- where it was trading before a March bear gap, triggered by talks of deteriorating U.S.-Turkey relations. The shares were last seen 3.1% lower at $23.13, and have not only breached their recently supportive 100-day moving average, but have shed 13.5% so far in October, pacing for their steepest monthly loss since August 2018.

TUR ETF chart 1014

In light of the geopolitical turmoil, the appetite for bearish bets on TUR isn't limited to today. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open roughly 10.5 puts for every call on the ETF in the past two weeks. That ratio registers in the 97th percentile of its annual range, underscoring the unusually high affinity for bearish bets of late.

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