Options Trader Bets Taiwan ETF Will Drop

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.

NEW YORK (TheStreet) -- The iShares MSCI Taiwan Index(EWT Quote) exchange traded fund is pulling back from a 15-month high reached Monday, and now one trader is positioning for a deeper decline.

OptionMonster's real-time tracking systems detected the purchase 31,000 December 12 puts and the sale of an equal number of December 13 calls. Both priced for 20 cents, resulting in neither a credit nor a debit. Volume was about 50% above open interest in both strikes.

The ETF is down 0.6% to $12.62 in afternoon trading. The fund gapped higher on Monday but was unable to break through the $13.20 area that provided support in 2007 and 2008. Some traders may now view that level as resistance.

Today's so-called risk-reversal strategy is designed to leverage a move to the downside. It will earn profits if the fund falls below $12 and lose money over $13 because of the short position in the calls. It may have been implemented as a hedge by an investor who owns a position in the ETF and is willing to sell it for $13.

The trade pushed overall options volume in the name to seven times greater than average.

-- Reported by David Russell of OptionMonster in New York.