As the major averages continue to consolidate and wait for direction from the U.S. administration, there appears to be investors who are looking for a correction.
On February 28, there was some unusual put option activity on the EEM iShares MSCI Emerging Market ETF (NYSE:EEM). A purchase of 100,000 December 37 puts was transacted, with the investor looking for further downside in the ETF.
Unusual activity reflects a situation in which the current volume is at least 200% larger than the prior day's volume, and larger than the open interest, which tells you that this is a new trade. In this case, the volume was 100K times the prior volume and 100 times larger than the open interest. There are some websites such as optionwisdom, that report on unusual options trading activity. Generally, hedge funds are the catalyst for these large changes in volumes.
Implied volatility on EEM is the market's estimate of how much the EEM will move over the course of the year. It has dropped to a 52-week low, which makes this an interesting trading opportunity as premiums are relatively inexpensive. This is reported on an annualized percentage basis.
In addition to the large trading activity, prices of the EEM appear to be breaking down. Momentum on the EEM ETF has turned negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.
