The iShares MSCI Brazil ETF (EWZ) is now 19% higher on the year, ahead of the Nasdaq-100's 15% advance, after rallying from a monthslong sell-off. Options traders are piling into the fund, with volume surging to six times its 30-day average and bullish call bets dominating the flow.
The iShares MSCI Brazil ETF is up more than 12% from last month's lows, pushing its year-to-date gain to 19%. That puts it ahead of the Nasdaq-100's 15% year-to-date advance.
Behind the move, the rally might be tied to the price of commodities, which are also surging, or an expression of optimism around Brazil's upcoming general election in October. Either way, options traders are piling in, placing uniquely big bets on EWZ that lean more bullish than bearish.
Options volume surges to six times average
Options volume surged to more than six times the 30-day average on Wednesday, according to Cboe LiveVol data. With more than 420,000 contracts traded by midday, EWZ ranked as a top-20 traded security in the options market, alongside Alphabet and the Cboe VIX Index, according to SpotGamma data. That is a rare ranking for any non-U.S. stock or ETF.
Calls dominate, but sellers hedge volatility
Calls dominate the trading in EWZ, with 400,000 calls changing hands versus fewer than 30,000 puts, according to ThinkOrSwim data. Yet almost as many calls are being sold as bought. Of the $50 million in premium traded, $48 million is tied to call contracts, with roughly $26 million of trades likely initiated by buyers, according to SpotGamma. The top 20 contracts traded were all calls, a very rare thing to see in options flow. Selling calls is not bullish, but it is not necessarily bearish either, and it is often part of bullish spread trading or directionally neutral bets.
The call-sellers might just be playing the heightened implied volatility in the fund. As EWZ's price has rallied over the past three weeks, implied volatility has climbed from 0.28 to 0.39, according to ThinkOrSwim data. That makes EWZ options the most expensive since late June, and some traders may be leaning into strategies that collect premium by betting the fund's swings will dampen.
Source: US Top News and Analysis
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