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A large institution was seen buying a large block of UUP call options yesterday just prior to today’s ramp in shares on positive news.  UUP was halted earlier today for news pending as DB shares announced a new share offering due to high investor demand:

“DB Commodity Services LLC today announced it has filed a registration statement with the US Securities and Exchange Commission (SEC) to register 100,000,000 additional shares of PowerShares DB US Dollar Index Bullish Fund (NYSE Arca: UUP) in order to meet investor demand. Creations of new shares in the fund are temporarily suspended pending clearance of the registration statement by the SEC, the Financial Industry Regulatory Authority and the National Futures Association and declaration of the effectiveness of the registration statement.”

As we noted yesterday, 155K call options were bought prior to this news which is sending shares almost 2.5% higher.  It doesn’t seem like much of a move, but this institution is about to make a killing on this “trade”.  Raj is in jail so we can be certain this isn’t him.  This is either very fortunate timing or a massive bet on a dollar rally.  My guess is this trade will be closed out in the coming days (if not hours):

  • An institutional trader placed a large bet on a rising dollar in the coming weeks:

UUP – PowerShares DB U.S. Dollar Index Fund – There was huge volume today in this ETF that tracks the American dollar’s index value ahead of this afternoon’s FOMC statement, which is likely to leave monetary policy unchanged and point to an ongoing situation in which interest rates remain accommodative for as long as the eye can see. Such an outlook for the dollar at a time of modest recovery has created a weak fundamental backdrop for the greenback. So today’s 155,000 call options bought for tiny premiums ranging between 10-15 cents per contract smacks of a large institution placing a sizeable gamble that change might be in the air either in what the Fed says this afternoon or for a more general change of heart towards the dollar before expiration on November 20. The dollar index on which this ETF is based is lower today and close to its weakest point in the current environment. With the price of the fund trading at $22.54, the investor needs to see a dollar rally lift the index and boost the price of the ETF beyond $23.15 by expiration in order to not lose money. A sharp turnaround in the fortune of the dollar today would automatically boost the index and therefore the value of this sizeable set of trades.

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