Unusual Options Activity in iShares MSCI Germany ETF (EWG)

| February 2, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity in iShares MSCI Germany ETF (EWG)

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

iShares MSCI Germany ETF (EWG) is the most popular ETF for trading German stocks. The ETF trades over four million shares a day on average. Check here for more info on the fund.

EWG is up 4% on the year so far. The current share price of $28.10 is 11% from the 52-week high of $31.74 and 12% above the 52-week low of $25.00.

So what does unusual options activity in EWG tell us?

Germany is the best performing economy in Europe and one of the top economies in the world. Although the country has been hit hard by the economic woes in Europe, it hasn’t been as bleak as most of the other countries in the region.

However, from an economic standpoint, Germany is going to have to deal with a cheaper Euro in order for the entire region to improve. More importantly, the country’s exports aren’t going to be in demand (even with a cheaper Euro) unless the Eurozone economy grows much faster than it currently is.

Here’s the deal…

Last week, around 12,000 February 28 puts in EWG were bought for roughly $0.50 a contract. Keep in mind, a put option makes money when the stock goes down (prior to expiration).

Just like other straight put (or call) trades, the option buyers can only lose $0.50 per option on this trade, although that’s $600,000 total in this case. The breakeven point is $27.50.

ETFs don’t tend to move that much, but EWG has been as low as $25 over the last year. If the ETF falls that far (due to economic troubles in Europe), the put buyers would make $1.50 per contract. However, the drop would need to occur before February expiration, which is just three weeks away.

On the other hand, this could be a substantial hedge against a large long position on Germany. Perhaps investors believe the ECB’s recent monetary easing actions will give a boost to Germany’s economy, and this trade is just protecting the downside.

Here’s the chart of EWG:

unusual option activity, a chart of EWG

As you can see from the chart, EWG is approaching its 50-day moving average. The stock could go either way from here. This trade could be a speculative bet or hedge… in this case, both strategies could make sense.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research. 

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.