This Week in Emerging Market Volatility – 3/28/2014

Last week the Brazilian market experienced a credit downgraded by Standard & Poor’s.  The result for the equity market was a rally of over 7% in the iShares MSCI Brazil Capped ETF (EWZ – 44.87).  EWZ has been around since the year 2000 so I decided to check if the 7.68% gain for EWZ was some sort of record or one of the top ten weekly moves for the fund.  EWZ has been around for 714 weeks and this past week’s performance was the 43rd best weekly performance on record.  I guess that explains why the CBOE Brazil ETF Volatility Index (VXEWZ – 28.16) only dropped 4.51% despite the rally in the Brazilian markets.

The rest of the emerging markets had solid performance as well with the iShares MSCI Emerging Markets ETF (EEM – 40.74) rising 4%.  The reaction from the option market was a drop in implied volatility as well.  Also, I know this space is supposed to be all about volatility, but I did come across a somewhat bullish EEM trade from Friday that is worth mentioning.  There was a buyer of EEM shares that sold 9,000 of the EEM Apr 41 Calls for 0.67.  I say somewhat bullish since the shares will be called away if they are over 41 in three weeks, however buying the stock and selling the calls indicates that the trader believes the fund at minimum has a floor here.

VXEEM VXEWZ