Trader Looking for a Better 2015 for Emerging Markets

At least one trader is looking for 2015 to be a green year for emerging markets. In trader-speak a green year means higher levels. Earlier this week, when the iShares MSCI Emerging Markets ETF (EEM) was trading around 39.30 there was a buyer for a very long dated call spread. Looking to December of 2015 and EEM being at or above 41.50 a buyer came into the market purchasing 50,000 EEM Dec 2015 38.50 Calls at 3.85 and selling 50,000 EEM Dec 2015 41.50 Calls for 2.30 and a net cost of 1.55.


As seen in the payoff diagram above this trade will return a profit of 1.45 if EEM is at 41.50 or greater at expiration. This involves a gain of around 6%. However, something to keep in mind is that EEM pays dividends and those dividends will reduce the share price of the ETF. Based on recent history two EEM dividends will be paid, one in June and the other just before December expiration next year. So a 6 percent price return would mean a little bit more of a total return for the emerging markets for this trade to work as hoped for by one trader bullish on emerging markets next year.