Call buying surges in dollar ETF-11/04/2009

Options action surged in the UUP exchange-traded fund today as investors positioned for more strength in the U.S. dollar.

Our Heat Seeker tracking system detected a surge of buying in the November 23 calls. Volume in the calls ripped to 106,168 contracts, more than twice existing open interest. Almost all the transactions priced for $0.15.

The UUP, which tracks the U.S. dollar index and is known formally as the PowerShares DB U.S. Dollar Index Bullish,  fell 0.66 percent to $22.53 in morning trading. The fund has been gaining more attention lately as investors positioned for a rebound in the greenback.

Today's call buying is difficult to interpret in isolation. On its surface, it represents a bullish bet on the dollar and will profit if the UUP climbs 3 percent by expiration. However it could also be used as a hedge by an investor who owns assets such as oil or foreign stocks, which will probably fall if the dollar rallies.

The trade also occurred the morning before the Federal Reserve issues its monetary policy decision. If the Fed alters the language to hint at the possibility of higher interest rates, that could also support the dollar.

Overall options volume in UUP is triple the average level so far today, with the November 23 calls accounting for more than 90 percent of the activity.

(Chart courtesy of tradeMONSTER) 

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