Today’s tickers: EWJ, VIX, BP & AMT
EWJ – iShares MSCI Japan Index – Since the middle of May, shares in the Japanese market tracker have lunged between a peak at $10.00 and $9.15 creating a neat trading range. With an overnight confidence in global stocks hitting the fan and a capitulation to a 15-year high for the yen, the EWJ has pretty much fallen from the top to smack bang in the middle of that same range in just three days. One option traders appears to be translating more of the same by selling that same strangle combination expiring in January. It’s one of several strategies emerging today where this expiration contract was used to play out various views. The $9.00/$10.00 strangle appears to have been sold for a premium totaling 60 cents, which gives this investor plenty of wiggle room in the event that boom or bust just happens to prevail. The strategy works nicely if by expiration the share price continues its predictable oscillation allowing the premium seller to hold on in entirety. If, however, shares edge lower the investor has to dig in his pocket assuming a break below $8.40 or beyond $10.60. Option implied volatility on the options jumped by around 25% to 20% on Wednesday.
VIX – CBOE Volatility index – Futures on the underlying VIX index are higher by 10% in the August contract and 6% in September, where the index is currently predicted to rise to 29.15. Further maturities have gained to a lesser degree in price as the entire volatility curve adjusts upwards to what some investors interpret today as an increased fear over the health of the U.S. economy. The November VIX future reflects only one third of the gain of the front month contract and stands at 30.40. The S&P 500 index is at its worst point of the day having tumbled by 2.5%. one investor appears to be moving expectations for market weakness out further into the early winter months through use of an options combination that will benefit if another summer market rout for stocks forces the volatility curve to blows higher still. The investor appears to have sold September call options on the VIX at the 45 strike for 75 cents and gone long of the same strike using the November expiration at $1.20 per contract. Around 10,000 contracts changed hands in the spread. The investor may well be looking…
