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Options Investing: Will you be ready when they push the button

Today's Financial News - Posted May 27, 2009

The situation in Asia is heating up. Russia warns of a nuclear battle and North Korean enemies duck for cover. The situation is bound to create intense volatility, that means smart options traders are about to make a slew of money.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): As I have said countless times on these pages over the past several months, making money in the options market is all about being on the right side of volatility.

Earlier today, I proved the notion to TFN Strategic Trader investors as I alerted them to lock in profits of up to 90% on a recent position. You may have read about it.

If not, do it here.

But when it comes to volatility, nothing is as topsy-turvy as the political mess in Korea. Now that Russia is warning of a possible nuclear battle, the stakes are increasing by the minute. With every missile North Korea fires, the situation gets more and more critical.

As usual, the options market offers the best short-term opportunity to take advantage of the situation.

Here’s how.

The instant a malicious shot is fired, global markets are going to react, but none more so than the already overbought emerging markets.

As volatile as it gets

I could come up with a list of reasons why the MSCI Emerging Market Index (EMI) is overvalued, but the underlying issue is the world’s smallest and fastest-growing markets remain derivatives of the American economy. In other words, they depend on a healthy America for growth.

While the equities market and yesterday’s consumer sentiment figures may show America is on a track to recovery, most economic data and earnings figures have yet to share the sentiment.

That means without the threat of nasty political action in Asia, emerging markets are in trouble. Add in the growing conflict and the sector looks downright risky. One bullet is all it will take to send the EMI, with its large exposure to Russia, Taiwan and much of Asia’s smaller components, into a tailspin.

Investors with a short position in an ETF like iShares MSCI Emerging Market Index (NYSE:EEM) stand to make strong profits just on the eventual decline of the index to fair value. Add in a political battle and the opportunity soars.

Savvy investors should be looking at mid-term put options on the EMI. The iShares ETF offers plenty of opportunities. I see more than a few good deals with September expirations.

For more profit opportunities as this situation unfolds, be sure to check out TFN Strategic Trader.


Next Article: TFN Reader Grapevine: Four volatile pennystock picks

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Posted by Andrew Snyder · Filed Under Featuring..., Options 

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