$EWZ bulls win on election results

Bullish option positions opened in the iShares MSCI Brazil ETF earlier this month paid off handsomely today as shares rocketed higher.

On October 4, Investitute’s market scanners identified the purchase of 10,000 Weekly $38 calls expiring on November 2 for $1.67 and $1.68 with shares at $36.01, as part of a bullish spread. Open interest in the strike was only 1,432 contracts before the trade occurred, showing that it was a new position.

Those calls traded for as much as $3.35 this morning, double their average purchase prices. The stock rose 14.36% in the same time period, illustrating how quickly options can far outperform moves in their underlying shares. It was the third winning trade in the Brazilian ETF discovered by Invesitute in the past few weeks, following the preliminary election results.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

EWZ screamed more than three percent higher to $41.38 this morning but pulled back with the rest of global equities to close at $38.63 today, or a 3.52% decline on a daily closing basis. The exchange-traded fund, which tracks an index of Brazilian equities, lifted as Bolsonaro won the Presidential vote in the final runoff vote yesterday, who has promised economic reform as a pillar of his candidacy.