The Emerging Dragon (Markets)
Many Macro analysts suggest that a reflationary environment is good for emerging markets. Add to that a weakening USD and a bullish BO above a multi year resistance and the fact that the Emerging Markets preformed poorly relative to the US in the last decade, you get an interesting asset that can attract a lot of money flows.
So what is a good way to play that with a good R:R ratio?
In my previous post about Taiwan's Right Tail, I showed you how you can use OTM calls that have enough time to expiration, to get a good exposure to the EWT with a relatively low initial risk (asymmetric payoff):
Now let's explore one year OTM Calls on the EEM etf:
The EEM etf hold 1239 Companies that are based all over the Emerging Markets.
The Exposure Breakdowns according to iShares site are:
So if you believe that the EEM is capable of going up more than 20-30% this year, you can consider buying OTM Call60/70 Which will give you a good exposure to the EEM if the above hypothesis will fulfill itself.
Last thing to keep in mind is that you are not entitled to dividends as an option buyer, but looking back at its dividend history, we see that you are only going to miss about 0.2-0.3$ on June21. So it doesn't change the rational of the trade.
So 8.8K can give me an exposure of 180K over 60 and another 700K over 70. This is what asymmetric risk looks like...
The following trade frame is an example for educational purpose only.
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