Options Intelligence Report: iShares Dow Jones Transportation Average Index Fund (IYT) & iShares MSCI Emerging Markets Index ETF (EEM)
IYT ñ iShares Dow Jones Transportation Average Index Fund
Shares of the IYT, an exchange-traded fund that seeks investment results that correspond to the price and yield performance of the Dow Jones Transportation Average Index, which is an index that measures the performance of the transportation sector of the U.S. equity market, edged 0.43% higher as of the middle of the trading session to stand at $83.59. Despite the slight appreciation in the price of the underlying shares, bearish transactions dominated options activity on the fund.
It looks like pessimistic players purchased at least 15,000 put options at the May $80 strike for an average premium of $1.00 per contract. The out-of-the-money contracts yield profits to investors if the IYTís shares sink 5.5% beneath the current price to breach the average breakeven point on the puts at $79.00 by May expiration. More than 24,000 put options changed hands at the May $80 strike today, which compares to paltry existing open interest at that strike of just 643 contracts. Increased investor demand for put options on the fund fueled a 7.8% increase in the overall reading of options implied volatility on the IYT to 20.72%.
EEM ñ iShares MSCI Emerging Markets Index ETF
A short straddle initiated on the EEM suggests one options player expects shares of the underlying fund to settle at $43.00 by December expiration. Shares of the EEM, an exchange-traded fund that tracks the price and yield performance of the MSCI Emerging Markets Index, which is an index designed to measure equity market performance in the global emerging markets, increased 1.35% to $42.86 as of 12:20 pm (ET).
The investor responsible for the straddle-strategy sold 5,250 puts at the December $43 strike for a premium of $4.35 each in combination with the sale of 5,250 calls at the same strike for $3.72 apiece. Gross premium pocketed on the transaction amounts to $8.07 per contract. The straddler keeps the full premium received on the trade if shares of the underlying fund settle at $43.00 at expiration. The amount of premium the investor retains erodes should shares shift in either direction away from the central December $43 strike price.
Short positions held in both call and put options exposes the trader to losses in the event that shares of the EEM rally above the upper breakeven price of $51.07, or if shares slip beneath the lower breakeven point at $34.93, ahead of December expiration.
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained fromthe use of this information. Past performance is not necessarilyindicative of future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this materialare not suitable for all investors. Any opinions expressed herein aregiven in good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take intoaccount your particular investment objectives, financial situations orneeds and is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particularcircumstances and, as necessary, seek professional advice.
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