Bears make big gains in $EFA

Bearish option traders have made exponential returns on their money in downside positions in the global iShares MSCI EAFE Fund (EFA).

On Feb. 27, Market Rebellion’s Unusual Activity Service flagged the purchase of 48,296 March $62 puts as part of a bearish roll for $1.12 to $1.20 with shares at $63.53. This was clearly a new position, as open interest in the strike was a mere 11,784 contracts before that session began.

Those puts traded for as much as $15.00 today, more than 12.5 times their purchase price. The stock declined 26.02% in the same time frame, underscoring how options can far outperform their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

EFA was down 10.32% to close at $47.45 today, an eight-year low. The exchange-traded fund, which tracks developed markets outside of the United States and Canada and has Nestle SA as a top holding, has fallen sharply over the past few weeks as global economic concerns grow as a result of the COVID-19 cornoavirus.