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Carter Worth spoke on CNBC's Options Action about current chart patterns in iShares MSCI Emerging Markets Index ETF (NYSE: EEM).

He started by comparing the performance of the S&P 500 and EEM in the last five years and showed that the spread between them has dramatically increased because the S&P 500 performed much better. He thinks that it is reasonable to expect that the spread will decrease as the performance of the emerging markets' stocks improves.

EEM is currently trading at a resistance of $45 and it tested the resistance three times in the last two years. Worth thinks that it is going to break above that price this time and that it could reach $52. In terms of technical patterns, this means that EEM will exceed the upper band of a well-defined wedge.

Brian Stutland suggested an options strategy which he finds the most suited for this technical setup. He would buy the October 45 call option for $1, which sets the breakeven at $46. Stutland explained that even if the market trades lower the option would not lose much because the volatility would increase in that scenario and add value to options. He also commented on fundamentals of EEM and said that at 4 times earnings it looks ridiculously cheap.

Posted-In: Brian Stutland Carter Worth Options ActionCNBC Media

 

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