Investors Are Hedging Their Bets on This Brazil ETF

The iShares MSCI Brazil Index ETF (NYSE:EWZ) is seeing some unusual options activity lately, with many investors seemingly using options to hedge against a potential price pullback.

Today in our ETF/Index options recap, we mention some activity in EWZ (Expense Ratio 0.62%) involving the September 32 puts.

Given EWZ traded as low as a $17 handle back in January of this year before topping out as high as $35.06 on an intraday basis just seven trading sessions ago, it is not terribly surprising to see some downside hedging here via put options — if not outright speculation on potential near term weakness in the product — especially given the conclusion of the Summer Olympics which some saw as an impetus for upside in Brazil itself.

We point out that EWZ has piled in more than $640 million in new assets year-to-date thanks to creation flows, giving it an asset base now tipping the scales near $4 billion. That puts it head and shoulders above the next largest “Brazil Equity” ETF in the space which happens to be FBZ (First Trust Brazil AlphaDEX, Expense Ratio 0.80%) which is considerably smaller at only $120 million in AUM.

From here, the asset levels drop dramatically throughout other “Brazil Equity” ETFs, with BRF (VanEck Vectors Brazil Small-Cap, Expense Ratio 0.60%, $107 million in AUM), BRZU (Direxion Daily Brazil Bull 3X, Expense Ratio 0.95%, $65 million in AUM), EWZS (iShares MSCI Brazil Small-Cap, Expense Ratio 0.62%, $50 million in AUM), and BZQ (ProShares UltraShort MSCI Brazil Capped, Expense Ratio 0.95%, $46 million in AUM) ranked in order to name the next largest funds in the space.

BZQ interestingly being a “Levered Bear” product may see an uptick in activity in the short term given the EWZ put buying that we mentioned, and the momentous rally in the space in a span of just six short months. BZQ has seen above average trading volume lately, including a huge swell in daily volume just five trading sessions ago so it is worth keeping on the dashboard here in the near term.

EWZ-2016-08-23

The EWZ rose $0.33 (+0.98%) to $33.98 per share in Tuesday afternoon trading. The largest ETF focused on Brazilian equities has surged 64% since the start of 2016.

About the Author: Paul Weisbruch
paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.

Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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