Although stock market averages rebounded and finished with modest gains, option flow indicates that the underlying sentiment among some institutional investors in the options market remained cautious on Monday. 4.6 million puts and 3 million calls traded on the

S&P 500 Trust



PowerShares QQQ


and other exchange-traded funds, including some big prints in two of the international ETFs.

One of the biggest options blocks of 2013 was seen midday Monday when 225,690 August 39 puts traded on iShares MSCI Emerging Markets Index ETF(EEM) for $0.75 per contract. With shares near $41.60, the same investor also sold 94,000 July 42 puts on the fund and 131,646 August 42 puts. Looking at trade history and open interest, the activity was apparently a roll. That is, the investor held hefty positions in July and August 42 puts and, after a 7-day 5% drop in EEM, is now rolling from in-the-money puts to out-of-the-money August 39 puts.

A hefty put spread in the

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iShares EAFE Fund


traded Monday as well after an investor sold the July 60 - August 58 put spread on the ETF at $0.45 cents (sold July and bought August). Today's open interest also indicate rolling activity, as the investor was closing out July to open a new large positoin in August downside puts. EFA was trading around $60.20 per share.

The big blocks of puts in EFA and EEM are probably hedges. That is, investors with exposure to global equity markets are probably buying August downside puts to help protect their portfolios. Still, given the size of the trades (about$1.7 billion in notional value), the activity is noteworthy. It indicates that some "smart money" in the options market is growing increasingly concerned about the short-term outlook for global equity markets heading into the sometimes volatile summer months. I'll use this general cue to hunt for the best risk/reward trade setups we can find to place some conservative hedges at the best possible cost.

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At the time of publication, Schiller was long XXX, although holdings can change at any time.

Dr. Harry Schiller is a Registered Investment Advisor with the California Dept. of Corporations. He holds a Series 7 General Securities license as well as a Series 4 Options Principal license. He has been owner and editor of the Short Term Consensus Hotline since 1988. For more information, see Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he appreciates your feedback;

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