$EWJ call prices triple

Bullish option positions opened in the iShares MSCI Japan Fund (EWJ) last week were paying traders handsomely this session.

Market Rebellion’s Unusual Option Activity Service flagged bullish option activity on two consecutive sessions in calls that expire this Thursday, New Year’s Eve.

–On Dec. 21, 15,000 December $66.50 calls, expiring on Dec. 31, were purchased for $0.40, as part of a complex bullish spread, above open interest of 92 contracts with shares at $65.44.
–On Dec. 22, 15,000 more December $66.50 calls, expiring on Dec. 31, were purchased for $0.32, also as part of a complex bullish spread, below open interest of 15,224 contracts but appearing to add to the same position opened the previous day, with shares at $65.57.

Those calls traded for $1.22 today, more than 3 times their purchase prices. The stock rose by as much as 3.3% in the same time frame, illustrating the kind of leverage that can be achieved with options.

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.

EWJ ended the session higher by 1.25% at $67.32 today. The exchange-traded-fund, which tracks a basket of Japanese equities, set new multi-year highs during today’s trade.