Emerging Markets Bulls Push Calls to Highest Since 2009: Options
By Jeff Kearns, Cecile Vannucci and Ye Xie - Oct 27, 2011
Options traders are making more bets than any time since 2009 that emerging market equities will climb after valuations fell to the lowest levels in three years.
The ratio of calls to buy the iShares MSCI Emerging Markets exchange-traded fund has jumped to a 22-month high of 0.80-to-1, up from 0.65 a month ago and the 0.59 average since 2006, according to data compiled by Bloomberg. Calls that pay if the fund climbs 4.2 percent to $42 by December are the fastest-growing bet and now account for the largest share of the ETF’s 5.46 million options.
Stocks in developing countries are rebounding from the longest losing streak in more than a decade as countries from Turkey to Brazil cut borrowing costs. While bears say the stocks will decline as inflation and Europe’s debt crisis crimp growth, bulls say smaller government debt levels give policy makers more ammunition to keep their economies expanding. The MSCI Emerging Markets Index has risen more than 20 percent since its Oct. 4 low, meeting the common definition of a bull market.
“These countries are still poised to move ahead,” James Swanson, who oversees about $208 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview yesterday. “The long-term story is intact, the stocks are depressed by historic standards and they trade at very low multiples.”
Open interest for the iShares ETF’s December $42 calls has surged to 191,220 contracts from 29,101 at the end of last month, the biggest gain among its options, according to data compiled by Bloomberg.
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