Japan (EWJ) - Vol Seller in Japan Is a Bet on Global Economy

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

  1. livevol_ophir

    livevol_ophir ET Sponsor

    EWJ (Japan) is trading $9.49 with IV30&#8482 up 5.3%.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/THvw0qfkBVI/AAAAAAAAEbc/8x16EyCu-04/s1600/ewj_summary.gif">

    The ETF has traded over 20,000 options on total daily average option volume of just 5,466. The largest trade, accounting for 20,000 contracts was a Jan'11 9/10 strangle sale @ $0.56. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/ewj.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/ewj.html">in the article</a>) illustrates that the calls and puts have huge OI. I see the puts with long OI and the calls with short. It looks like a Jan'11 9/10 risky went up on 8-11-2010 25,000x (buy puts/sell calls).

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/08/ewj.html">in the article</a>) illustrates the vols by strike by month.

    Not a lot going on there; but the Charts Tab does have a lot.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/ewj.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.

    Note how the IV30&#8482 trades well above the HV20&#8482 consistently in this ETF. i.e. the vol is usually a sale. For a brief moment a back spread was a winner, then back to vol sales. Recently the divergence has opened up pretty wide to 24 vs 18. The strangle sale today sells ~21 vol on average.

    Japan is interesting, in that it plays a big role in the overall global economy. Lower vol there means higher markets (usually). Check out this blog from 5-18-2010:<b><a href="http://livevol.blogspot.com/2010/05/currency-option-trading-and-greek.html">The European Crisis Explained and Currency Option Trading.

    Hmm... Bullish? Not really clear. If Japan rallies relative to the rest of the globe, does that imply a strengthening or weakening currency? If it's a weakening currency, ok... But if it's strengthening, that may imply bad news.

    This is trade analysis, not a recommendation.

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

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