Early yesterday, long before Janet Yellen shared her insights with the world, there was a block trade I came across with a bullish outlook for Emerging Markets. About 5 minutes after the opening bell rang there was a large seller of the EEM Apr 17th 39 Puts at 0.79 who purchased a similar number of EEM Apr 17th 37 Puts at 0.26 for a net credit of 0.51. At the time of the trade EEM was trading around 39.10, but moved higher in sync with the equity market rally that occurred after the FOMC announcement yesterday. The payoff diagram below shows where EEM was when the trade was initiated and where EEM finished the day yesterday.
Right now this is one of the best methods to gain exposure to emerging markets. However, next month CBOE plans on introducing index options on the MSCI Emerging Markets Index. This will give investors a new method of gaining exposure to emerging markets with the benefit of European style cash settled options. More info on this development will appear in this space at the launch day draws near. In the mean time you can visit www.cboe.com/msci for more information.