By Josh Selway / September 20, 2017 / www.schaeffersresearch.com /
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Put volume was accelerated on the iShares MSCI South Korea Capped ETF (EWY) yesterday after President Donald Trump said the U.S. might be forced to "totally destroy" North Korea. Meanwhile, iShares MSCI Mexico Capped ETF (EWW) yesterday was halted after a 7.1 magnitude earthquake hit Mexico City, and put traders began to pour in later in the day. Let's take a closer look at the data on exchange-traded funds (ETF) EWY and EWW.
Put Volume Pops on EWY
By the close yesterday, 6,354 EWY put options had traded, compared to just 153 calls. Most popular by a long shot was the November 65 put, but the largest trade involving this strike gives the impression of sell-to-open activity -- meaning the speculator is expecting the ETF to hold above $65 through the close on Friday, Nov. 17, when the contracts expire.
Today, puts are outpacing calls 1,426 to 108. Leading the way is the weekly 10/6 66.50-strike call, and buy-to-open activity seems likely. These bears would be betting on the fund falling below $66.50 by the close on Friday, Oct. 6, when the weeklies expire.
Generally speaking, put buying has been far more popular on the security. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 5.57, meaning almost six long puts have been opened during the past two weeks for every call. This ratio ranks in the 70th annual percentile, suggesting such a put-skew has been rarely seen.
The iShares MSCI South Korea Capped ETF was last seen trading at $70.12, up 35% since its November lows. The shares have pulled back since peaking near $72 in July, but have twice found strong support from their 100-day moving average. Plus, EWY has historically performed well during the fourth quarter, averaging gains of 1%, 1.6%, and 2.1% for October, November, and December, respectively.
EWW Put Traders Eye the $55 Level
As for EWW, puts accounted for nine of its top 10 most popular options yesterday. Of note, buy-to-open activity was detected at the weekly 9/29 54.50 put, suggesting traders are expecting the shares to pull back by next Friday's close, when the weekly contracts expire.
However, it's seemingly not the best time to be buying to open puts. For instance, the ETF has a 30-day implied volatility skew of 22.9% is only 15 percentage points from a 12-month high, revealing near-term puts have rarely been more expensive over the past year, relative to calls.
And while ISE, CBOE, and PHLX data shows call buying has been more popular than put buying during the past 10 days, there doesn't appear to be any shortage of bears around the security. That's because peak open interest resides at the October 56 put, and there's also notable open interest at the October 55 put. Significant buy-to-open activity has been detected at the latter strike.
Turning to the charts, the iShares MSCI Mexico Capped ETF has had a strong year, adding 29% in 2017 to trade at $56.28. Also, the shares have seemingly found a short-term foothold atop their 80-day moving average, and like their fellow foreign ETF, have historically had success in the last three months of the year. By the numbers, EWW has averaged respective gains of 1.4%, 1.8%, and 2.1% for the months of October, November, and December.