Critics of exchange-traded funds (ETFs) take note. While the results were far from pretty, the iShares MSCI Brazil Capped ETF (EWZ) acted exactly as it should have on Thursday when it plunged 16.3 percent on more than 11 times its averaged daily volume (ADV) as corruption concerns once again rattled stocks in Latin America's largest economy. That type of decline, one of the largest such one-day tumbles in EWZ's nearly 17 years on the market, is not worth writing home about, but what is notable is that EWZ was traded efficiently during Thursday's U.S. session. Trading in EWZ, although elevated, was smooth even as Brazilian exchanges were closed for part of the day.

"EWZ traded over $5.4 billion in notional value, making it (Thursday) the single biggest trading day in the fund's 17-year history," according to BlackRock, Inc. (BLK). BlackRock is the parent company of iShares, EWZ's sponsor and the world's largest ETF issuer. The $4.9 billion EWZ, the largest single-country ETF dedicated to a Latin American economy, holds 59 stocks. Nearly 37 percent of the ETF's holdings are financial services stocks, more than double the ETF's second largest sector allocation, which is consumer staples. However, the ETF's exposure to energy and materials names, such as Petrobras (PBR) and Vale S.A. (VALE), sent EWZ and Brazil's benchmark Bovespa tumbling amid heightened government corruption fears. (See also: Brazil's Political Crisis Weighs on These ETFs.)

Data points suggest that some professional traders turned to EWZ over Bovespa futures to play a new round of Bovespa tumult. "EWZ traded 18 percent more in dollar notional terms than Bovespa Futures (BZM7) (Thursday), when on average, the futures trade significantly more than the ETF," according to BlackRock. (See also: Investing in Brazil 101.)

Options activity in EWZ was brisk yesterday with, perhaps surprisingly, more calls than puts changing hands on the Brazil ETF. "EWZ options traded a total of 660,309 (~$2.2 billion notional) contracts in the listed market, 5.7x ADV (in terms of number of contracts traded)," said BlackRock. "What's interesting in the market is that the amount of calls traded outpaced puts by 1.2x. ... The largest single traded contract was June 16th 2017 $37 calls with volumes over 39,000 contracts, followed by June 16th 2017 expiry in $35 calls that traded almost 28,000 contracts over the day."

In terms of overall options volume, Thursday was the sixth largest day in EWZ's history. EWZ closed at $32.75 on Thursday, slightly below its net asset value of $33.63. In the first quarter, EWZ closed at a premium or discount to its net asset value on 62 occasions, but those were mostly confined to premiums or discounts of 0.5 percent of less. (See also: Top 5 Brazil ETFs for 2017.)

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