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Wednesday, March 30, 2011

Buy Emerging-Market Put Options Barclays (BCS) Says, Sell Japan's

Traders should look to emerging market stocks to acquire put options, while also selling Japan stock puts, according to Barclays (NYSE:BCS).

Barclays believes the shares of emerging-market sotcks may drop because of the increase in commodity prices, while Japanese stocks could rally on reconstruction related to the devastation from the earthquake in Japan.

Maneesh Deshpande, heads of the top-ranked equity-linked strategies team in Institutional Investor magazine’s 2010 survey, said, “Japanese gross domestic product grew at a relatively fast rate for the next eight quarters. Against this outlook for Japan, emerging markets face increasing headwinds on account of mounting inflation due to increasing commodity prices and geopolitical risks in the Middle East.”

Bloomberg data show that the Japan ETF’s implied volatility, the key gauge of option prices, for at-the-money options expiring in 30 days is 28.63. That’s down from 51.84, the highest in more than two years, as of March 16. The current reading compares with a median of 19.56 over the past year.

Deshpande recommends buying iShares MSCI Emerging Markets (NYSEArca:EEM) exchange-traded fund and selling January $9 puts on the iShares MSCI Japan ETF (NYSEArca:EWJ).

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