Thursday, February 17, 2011

EEM Put Fly Buyer

Today we saw @RMBrenna tweet about a buy of the EEM Jun $36 Puts. When reviewing LiveVolPro for some background, we saw another interesting trade that stood out from the rest of the order flow.

The trader stepped in and bought a Mar 40/43/46 put fly 5,000x for a 65c debit. Note the elevated vol in the April series relative to May. Skew chart provided by LivevolPro

EEM has been consolidating since November, after having made a run from around $40 in August to $48 at the end of October. Check out the chart below from LivevolPro

The trader will win out with the stock at $43 by March expiration. The $43 level would be very close to the 61.8% retrace from the swing high as shown above. As a trade, it is an interesting way to gain exposure to the downside while being short vol.

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