Markets

Bulls ride jump in commodity fund

Commodities are ripping higher, and one investor is riding the wave using the PowerShares DB Commodity Index Tracking Fund.

optionMONSTER's Heat Seeker tracking system detected an unusual set of transactions in the DBC exchange-traded fund today that suggests a large investor exited a winning trade and made a new investment with even greater leverage.

DBC

A block of 2,600 January 22.50 calls was sold for $3.65 against existing open interest. At the same time, 2,600 January 22.50 calls were bought on DBC for $2.45 and 2,600 January 28s were sold for an average premium of $0.265.

The net result was that investor collected $1.465 in premium and now owns a so-called vertical spread that will be worth another $4 if DBC closes at or above $28 on expiration.

The fund mainly holds oil but also tracks metals such as gold, copper, and zinc. It's up 2.13 percent to $26.24 in morning trading and has rallied 9 percent in the last month.

The most recent catalyst for commodities was the Federal Reserve's decision to buy $600 billion of bonds under a program of so-called quantitative easing. It's part of an ongoing "weak dollar" trend, which was also bolstered by Australia's unexpected interest-rate hike on Monday night--an important move overshadowed by the U.S. elections the following day.

Australia's currency, which is hitting an all-time high, is a key indicator for the direction of commodity prices.

Overall option volume in DBC was 7 times greater than average so far today, with calls outnumbering puts by more than 800 to 1.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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