Today, we’re recommending a new bullish trade on iShares MSCI Emerging Markets Index (ETF) (EEM). The fund broke out last week on news that Japan will begin much more significant quantitative-easing efforts, likely a reaction to deflationary fears and the fact that Japanese GDP contracted more than 7% in the second quarter following a big sales-tax hike.

In 2015, Japan will pump money into the economy to the tune of 15% of GDP and boost the duration of bond purchases from 7 years to 10 years. At the same time, the country’s government pension fund, which currently has a 60% weighting in Japanese bonds, will be shifting more of its assets into stocks.

The surprise announcement from the Bank of Japan has some serious risks — but it also presents some interesting opportunities, as well. For example, as the yen falls in value, pressure will build on emerging markets like China to engage in its own stimulus to compete.

If expectations for increased demand for base commodities in Japan rise (even in the short term) then the impact on emerging markets would be further compounded. We think the small break above short-term resistance on EEM is an attractive opportunity. However, this is a trade that we would recommend keeping on a short leash — there is resistance at ~$43.50, at which point you may want to make an early exit.

‘Buy to open’ the EEM December 42 Calls (EEM141220C00042000) for a maximum price of $1.15.

John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get 1 free month today.

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