$EWA bears collect major profits

Bearish option traders are collecting major profits in downside positions on the iShares MSCI Australia Index Fund (EWA) today.

On Feb. 28, our Unusual Activity Service identified the purchase of 20,000 April $19 puts for $0.55, as part of a bearish roll, with shares at $19.93. Volume was well above the strike’s open interest of 114 contracts, showing that this was a new position.

Those puts sold for as much as $2.65 today, nearly 5 times times their purchase price. The stock fell 18.21% in the same time frame, a huge move but still nowhere near that of its options on a relative basis.

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.

EWA gapped lower this morning and traded to close at $16.30, down 4.9% for the session. The ETF, which tracks a basket of Australian equities, dropped today after the country reported for Apr. 14 its first daily increase in coronavirus cases since Apr. 7.