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Euro bears use leveraged ETF

Posted
8/10/2010 12:45:00 PM
By: optionMONSTER
Referenced Stocks:EUO;FXE

The euro is heading lower, and some traders are playing the move by combining the power of options with a leveraged ETF.

optionMONSTER's Heat Seeker tracking system detected heavy call buying in the ProShares UltraShort Euro ( EUO ) exchange-traded fund, which moves twice as much as the common currency, but in the opposite direction.

EUO Chart Money flowed into the September 21 calls, which mostly traded for $1.10 to $1.20, and the August 21 calls for $0.77 to $0.85. The September contracts changed hands 4,299 times while the August calls saw volume of 2,182. Activity was more than twice open interest in both strikes.

EUO rose 2.12 percent to $21.68 in early afternoon trading and is up about 3 percent in the last three sessions amid weakness in the euro.

The common currency is now heading lower after a blistering two-month rally from $1.19 to $1.33. The move, which followed the panic about fiscal difficulties in Greece and Portugal, brought the euro to a key chart level from March and April where some traders might expect resistance.

Today's option transactions are noteworthy because the investor is using the power of options to amplify a move in EUO, which itself is designed to leverage a drop in the euro.

The activity pushed total options volume in the fund to 7 times greater than average. Calls outnumbered puts by 118 to 1.

(Chart courtesy of tradeMONSTER)