Traders Bet on Declines in China, Brazil

OptionMonster co-founder Pete Najarian provides options picks Monday, Wednesday and Friday in TheStreet.com's Deep in the Money Calls newsletter.

David Russell, reporter for OptionMonster.

The emerging markets of Brazil and China have led the global stock markets this year, but now options traders are looking for a pullback.

Put volume in the exchange traded fund that tracks China surged to 73,048 contracts, more than twice the average and six times the number of calls. Most of the buying focused on the July 34 strikes, which changed hands 56,206 times against open interest of 5,340 contracts. The July 37 puts also traded more than 5,000 times for $2.25 to $2.55, although volume was below open interest.

The iShares FTSE/Xinhua China 25 ETF(FXI Quote) is down 0.6% to $37.01 in early afternoon trading, and is up 27% this year. The iShares MSCI Brazil Index Fund(EWZ Quote), which has risen 49% so far in 2009, saw heavy trading in its July 55 and July 50 puts. The EWZ is down 1% to $52.69.

Some agricultural stocks that often trade closely with emerging markets were also targeted by the bears. Intrepid Potash's(IPI Quote) June 25 puts traded more than 4,277 contracts, with buyers dominating the action. Intrepid Potash is down 8.8% to $26.39.

Potash(POT Quote) and Deere(DE Quote) also experienced above-average put buying as their share prices fell. Potash is showing some bearish technical signals on its chart as well.

One emerging-market country to see better sentiment was Mexico, where 24,750 June 35 puts were sold for 40 cents against open interest of 43,112 contracts. The trader might have removed downside protection from a long position in the stock, or written the puts to receive premium. The iShares MSCI Mexico Investable Market Index Fund(EWW Quote) is up 0.08% to $35.60.