Today’s tickers: UUP, FTI, ZRAN & NDAQ
UUP – PowerShares DB US Dollar Bullish Fund – A sea change in attitude toward the dollar following today’s weaker-than-expected employment report inspired one options player to cut and run from a large bullish position in the US Dollar Bullish Fund this morning. Shares of the UUP, an exchange-traded fund that tracks the performance of the dollar index, are down 1.00% to arrive at 22.93 just before 11:30 am. It looks like the trader originally purchased a massive position in March 2011 24 strike calls to gain exposure to a rising dollar, or alternatively to defend against dollar appreciation, ahead of the Fed’s decision to roll out a second round of quantitative easing. The investor appears to have purchased 105,500 calls at the March 2011 24 strike back on October 27, 2010, at a premium of $0.34 apiece. Since the calls were purchased, the fund rose approximately 3.8% from 22.65 up to this week’s high of 23.52. In hindsight, the trader would have been better advised to act ahead of Friday’s employment data release as he did when he initially purchased the calls ahead of the Fed announcement. Premium on the March 2011 24 strike calls stood at an average of $0.48 each on Tuesday when the UUP touched its intraweek high of 23.52. The plunge in the value of the dollar today combined with the adverse effects of eroding time value on the contracts pushed premium on the calls down significantly. The investor received just $0.24 per call option on the sale of all 105,500 contracts today. Net losses on the closing sale amount to $0.10 each. We do not know whether the options were tied to an underlying position or if the initial long call position was intended as a hedge against a strengthening dollar. These are important factors that would likely change the interpretation of the activity observed on the UUP this morning.
