Unusual Options Activity In PowerShares DB US Dollar Bullish ETF $UUP

| August 28, 2015

Unusual Options Activity In PowerShares DB US Dollar Bullish ETF $UUP

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

PowerShares DB US Dollar Bullish ETF $UUP is a popular method for investing in the US dollar.  The ETF compares the dollar against a basket of six major world currencies.  For a good description of the fund, follow the link.

$UUP is trading at $24.68, up 2% for the year.  That’s 7% below the 52-week high and 12% from the 52-week low.

So what does unusual options activity in UUP tell us?

Buying UUP is the equivalent of investing in the US dollar (such as buying treasury bonds).  The difference is the ETF is being tracked against a basket of six world currencies rather than being a standalone fixed income product.  Regardless, the stronger the dollar, the better UUP does.

The dollar has been particularly strong lately despite ultra low rates.  That’s essentially because the US economy has been the strongest in the world.   Relative to just about everywhere else, the dollar is still the safest currency out there.

Here’s the deal…

This week, a trader bought a huge block of calls on UUP.  Keep in mind, a call option makes money when the underlying stock or ETF goes higher.

Specifically, a trader purchased 50,000 September 25 calls for $0.10.  The total cash collected for this trade is roughly $500,000.  Breakeven point for the trade is $25.10.  Given the open interest, this trade is clearly an opening position.

Here’s the chart of $UUP:

unusual option activity, a chart of UUP

UUP has dropped below the 50-day average the past few days due to the correction in equity markets.  However, the steep losses look they hit a bottom and may be in the process of reversing.

This trade suggests the dollar’s retreat is at an end.  What’s more, with emerging market economies looking fragile, the dollar is once again being recognized as the safest play to be.

The trader was able to buy the calls for just 10 cents because UUP doesn’t move all that much (like most currency ETFs).  However, the ETF price could very easily climb above $25 by September expiration.  In addition, the call price doesn’t have to appreciate that much in order for the trade to be a big winner.  That’s the benefit of buying 50,000 calls!

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis
Options Trading Research

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report.  We are your go-to source for top notch options trading research.

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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