Options traders who placed bets last week thatMexico’s outbreak of deadly swine flu would spur a stock-market sell-off earned 200 percent on their investments today.
Contracts giving the right to sell the iShares MSCI Mexico Investable Market Index Fund for $31 by May 16 jumped to $1.80 today from the 60-cent closing price last week, according to data compiled by Bloomberg. June $26 puts, the most-traded options today on the iShares fund, climbed 113 percent to 85 cents, Bloomberg data show.
The fund, which mimics the performance of the MSCI Mexico Index and changes hands on the U.S. exchange like a stock, lost 7.2 percent today to $30.73 after President Felipe Calderon declared emergency powers to fight the virus, which has killed as many as 149 people in Mexico. Mexico’s Health Minister Jose Cordova cancelled school classes on April 24 to prevent the spread of a “new strain of influenza,” according to an e- mailed transcript of a speech in Mexico City.
“You could have done it on Friday because the news was out and that’s when they started to announce the school closings,” Eric Conrads, a Mexico City-based hedge-fund manager at ING Investment Management SA, which oversees $12 billion in developing markets, said in an interview.
The iShares fund had climbed 20 percent in the past month after the government’s decision to seek a $47 billion credit line from the International Monetary Fund to help weather the global financial crisis.
Bolsa, Peso Drop
The benchmark Bolsa index fell 3.3 percent as retailers and airport operators tumbled on concern the flu outbreak will hurt travel and the tourism industry. Mexico’s peso today dropped 4.4 percent against the dollar, the biggest drop in six months.
Grupo Aeroportuario del Pacifico SAB, the country’s largest private sector airport operator, plunged 14 percent, while Wal- Mart de Mexico SAB, Latin America’s largest retailer, slid the most since November.
Mexico’s Finance Minister Agustin Carstens said “there’s no doubt” the outbreak will reduce economic output and that the virus has a “high potential for disruption.” Tourism attracted $13.3 billion into the economy last year, making it Mexico’s third-largest source of foreign currency behind oil exports and remittances from Mexicans living abroad.
Put Volume Climbs
May $25 puts were the best-performing options tied to the iShares fund today, jumping 320 percent from the last closing price on April 20, to 21 cents, according to Bloomberg data. Put trading climbed 26 percent on April 24 from the previous day to 4,964 contracts. Still, trading was below the 6,714 daily average during the previous two weeks.
Put-option volume on the fund climbed to 13,037 contracts today, compared with a weekly average of 7,353 this year, according to Bloomberg data. Those contracts outnumbered trading in bullish bets, or calls, by 2-to-1 today. Put options give the right to sell a security for a certain amount, the strike price, by a given date. Calls convey the right to buy.
Conrads, who’s betting on declines in Mexican shares, said some of the put options may have been bought by investors using the contacts to hedge against existing holdings of Mexican stocks.
To contact the reporters on this story: Michael Patterson in London atmpatterson10@bloomberg.net; Alexander Ragir in Rio de Janeiro ataragir@bloomberg.net.
By Michael Patterson and Alexander Ragir
http://www.bloomberg.com/apps/news?pid=20601086&sid=aDoQtvn4WL9Y&refer=latin_america
