Implied Volatility Over 150 in EWZ, the Brazil ETF

Truth be told, I could pick a ticker at random and have a compelling chart of implied volatility. Some, of course, are more compelling than others.

Take EWZ (NYSE: EWZ), for instance, the Brazil ETF. This resource-rich country has seen its ETF lose more than half of its value over the past year, coupled with a dramatic rise in volatility over the course of the past month.

In the chart below, courtesy of the International Securities Exchange, one can discern that implied volatility and historical volatility had been hovering in the range of 40 even as the ETF trended down during the summer. Starting in early September, the increase in volume in both the ETF and the options hints than an even wilder ride is coming.

In fact, implied volatility spiked from 40 to over 140, with historical volatility making similar gains. At the moment, both mean IV and HV are over 120, with both the near the money calls and puts expiring at the end of the week showing implied volatility readings in excess of 150. This is country risk at extreme levels.

Those with a directional preference who are looking to limit risk in high volatility environments may wish to look at bear call spreads for a short bias and bull put spreads for a long bias.

 

[Disclosure: long EWZ at time of writing]

9:37 PM PT:  Could today be a higher Low?  Don't be surprised if that turns out to be the case...

9:49 PM PT:  Excellent Summary of Financial Crisis of Freakonomics:  I normally shy away from devoting a post entirely to heaping praise at one particular post out in the blogosphere, but Steven Levitt's (of Freakonomics fame) Everything You Need to Know About the Financial Crisis: A Guest Post by Diamond and Kashyap is required reading for anyone who wants an excellent summary of where we are, how we got here, and what might happen going forward