Big Printin’ – $EEM, $GE

by Dan February 18, 2016 3:44 pm • Commentary

The emerging market etf, EEM takes the prize for the single largest options trade in the market today. When EEM was trading $30.50, there was a buyer of 215,000 of the March 33 calls, paying 16 cents to open, or paying $3.44 million in premium. These calls break-even at $33.16, up nearly 9% in a little more than a month.

While this is a clearly sizable in premium and contract terms, the options market is placing a fairly low probability that these calls are in the money on March expiration (about 15 delta, implying a 15% chance they are in the money).

A look at the 7 year chart shows the massive technical breakdown in the mid $30s, which will serve as important technical resistance:

EEM 7 year chart from Bloomberg
EEM 7 year chart from Bloomberg

I suspect this trader is leveraging an existing long position.

General Electric (GE): And in single stock land, the largest trade of the day in the options pits was what appeared to be a decent size over-writer rolling down strikes and out a month.  When the stock was $29.10 a trader bought to close 68,000 March 33 calls for 3 cents and sold to open 75,000 April 30 calls at 45 cents.  The assumption is that the 75,000 April 33 calls were sold against 7.5 million shares. The call sale caps gains at $30 on April expiration, but with the stock $30 or below the investor would receive $3.375 million.

GE has shown decent relative strength vs many other industrial stocks since its 52 week highs. Its highs came at the end of December, while many peers had been in fairly steady downtrends for months if not quarters before then. GE’s relative strength in 2015 was the result of their plan to sell financial assets to simplify their business model and use the proceeds to buy back stock.