EWH (Hong Kong ETF) - Huge Bet on a Downturn in Hong Kong

Discussion in 'Options' started by livevol_ophir, Jun 30, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    EWH (Hong Kong ETF) is trading 14.91 with IV30&#8482 down 5.6%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/TCuL72T6wAI/AAAAAAAADSI/5W9bhfdLZv4/s1600/ewh_summary.gif">

    The ETF has traded over 16,000 options on total daily average option volume of just 2,988. All but 150 contracts have been puts. The largest trade was 15,000 Dec 14 puts bought for $0.75 on a 34 delta against $14.92 stock. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/ewh.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/ewh.html">in the article</a>) illustrates that the puts are opening (compare OI to trade size). You can see almost nothing else has traded today; just 16,000 puts - of which 15,000 were a single trade.

    <b>Trade Stats</b>
    Buy 15,000 Dec 14 puts for $0.75
    Buy 15,000*100*.34 = 510,000 shares of stock for $14.92
    Max Loss (at $14) -$1,594,200
    Breakeven Low: $12.39
    Breakeven High: $17.12

    This is a lopsided straddle (~2 puts for every 1 call). It gets long $55,500/vol (i.e. vega). So, this is a vol bet as much as it is a bearish straddle. Someone is betting on a hard downward move in Hong Kong.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/ewh.html">in the article</a>) illustrates the vols by strike by month.

    This is exactly why skew charts are cool. We can see clearly how the customer buying interest has shot the vol in the Dec 14 puts above the other months while the Dec 13 puts are below the other months.

    Finally, the Charts Tab (6 months) is <a href="http://livevol.blogspot.com/2010/06/ewh.html">in the article</a>. The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    It sort of looks like a reverse chart of the VIX from the earlier post. Vol is above the historical, the price has dipped recently and a huge vol buyer just stepped in.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here: