UPDATE: Greek Tragedy and A Way to Play With a 4 to 1 Payout in EEM

by Dan June 29, 2011 6:50 am • Commentary

Since entering this trade last Thursday the markets have done nothing but rally and EEM is up almost 4%. The structure is worth about .05 now and I guess the moral of this story is to be careful pressing shorts when we are oversold, try to wait for a bounce…..when you look at the 7 day chart you now see that the stock had just sold off 3.5% and was sitting on key support.  But If you want to make these sorts of bets then try to use spreads and define your risk. I have this on and the likelihood of making money in it at this point are slim as expiration is 3 days away……we will need a no vote this morning’s austerity vote in Greece to even have a prayer….which was the reason I put this on in the first place.  I guess the other point I would make is that in times like these I am looking for lo risk high reward structures in a defined time period around defined events where the outcome is unknown.  This structure over 6 trading days offered a potential 4 to 1 payout around and event that I thought could cause some volatility….the problem was I had the wrong direction.

[caption id="attachment_2951" align="aligncenter" width="300" caption="7 Day EEM Chart Provided by Bloomberg LP"][/caption]


ORIGINAL POST June 23rd, 2011:

Greek Parliament is expected to vote on the 28billion euro austerity plan on Tuesday, which includes a new 6.4 billion euros of cutbacks for 2011……a separate vote on the implementing legislation is expected by Thursday.  This will not come without a fight that will likely be played out in smoky backrooms and in the street and I think we will have continued downside volatility.  [private]

I want to use EEM to express a short term bearish view as I am looking for other broad indices outside of SPX (I am long June weekly Puts in SPY).  EEM looks like it wants to test 44 and if it breaks the trade structure below should perform very well.

[caption id="attachment_2903" align="aligncenter" width="300" caption="1 Yr EEM chart Provided by Bloomberg"][/caption]

QUICK TRADE:  EEM $44.90 BUY July1 Weekly 44/43 Put Spread for .22

-Buy 1 July1 (weekly) 44 Put for .42

-Sell 1 July1 (weekly) 43 Put at .20

Break-Even On July1 Weekly Expiration:


-stock btwn 44 and 43.78 lose up to .22,

-stock above 44 lose all .22

Stock btwn 43.78 and 43 make .78

Stock below 43 make full .78