Put-Options Volume for Asian ETFs Surges on Concern About Japan
March 17 (Bloomberg) -- Put trading for an exchange-traded fund tracking Japanese shares surged to a record yesterday after equities in the nation jumped, while U.S. volume for bearish contracts on nations elsewhere in Asia also increased as the nuclear crisis north of Tokyo intensified.
More than 383,300 puts to sell the iShares MSCI Japan Index Fund changed hands in the U.S. yesterday. The ETF fell 3.7 percent to $9.66, the lowest price since September. Yesterday’s put volume was 11 times the four-week average. Trading of bearish options on ETFs tracking South Korean and Chinese stocks rose to the highest levels in at least nine months.
Japan’s Nikkei 225 Stock Average rallied 5.7 percent yesterday after plunging 16 percent since March 11 in the worst two-day drop since 1987. The MSCI All-Country Asia ex-Japan Index fell 3.7 percent this week, while the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 2.4 percent and Korea’s Kospi Index declined 2.2 percent. The tsunami that followed Japan’s worst earthquake on record damaged the Fukushima nuclear power plant, spurring concern of increased risk of radiation.
“These investors appear to be concerned with downside in shares alongside the ongoing nuclear radiation problem in Japan,” options strategists at Susquehanna Financial Group LLLP wrote in a report yesterday, referring to put buyers.
The Nikkei 225 fell 3.7 percent to 8,757.67 at 9:27 a.m. Tokyo time today.
U.S. Nuclear Regulatory Commission Chairman Gregory Jaczko told a House Energy and Commerce subcommittee that all cooling water at one of the reactors has drained from the spent-fuel pool and “radiation levels are extremely high, which could possibly impact the ability to take corrective measures.” The Associated Press said Japanese officials denied all the water has drained and said the reactor, known as Unit 4, is stable.
Trading of bearish iShares MSCI South Korea Index Fund options surged for a second day to a 10-month high, with most of the trading concentrated in contracts with a strike price 2.8 percent below yesterday’s close. An investor bought a block of March $55 puts for 16 cents each, according to the Susquehanna report and data compiled by Bloomberg. The contracts expire at the end of the week. More than 39,000 puts traded yesterday, 8.5 times the four-week average and 55 times the number of calls. The ETF fell 1.9 percent to $56.61 yesterday.
Put volume for the iShares FTSE China 25 Index Fund rose to its highest level since June. More than 135,500 puts traded, three times the four-week average and 2.5 times the number of calls to buy. The biggest trade was a block of 15,079 April $40 puts for 69 cents each, data compiled by Bloomberg show. The ETF dropped 2.5 percent to $41.75. The April $40 puts were the most- traded contracts and accounted for more than one-third of all put trades.
Calls give the right to buy 100 shares of a security for a certain amount, the strike price, by a set date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.
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