As of today, the top ten most active stock options were:

  1. PowerShares DB US Dollar Index Bullish (NYSE:UUP) November 23 Call Options
  2. S&P 500 SPDR (NYSE:SPY) November 105 Put Options
  3. Bank of America (NYSE:BAC) November 16 Call Options
  4. Bank of America November 17.5 Call Options
  5. PowerShares DB US Dollar Index Bullish December 23 Call Options
  6. S&P 500 SPDR November 106 Put Options
  7. PowerShares QQQ (NASDAQ:QQQQ) December 44 Call Options
  8. Caterpillar (NYSE:CAT) December 45 Put Options
  9. Caterpillar February45 Put Options
  10. Human Genome Sciences Inc (NASDAQ: HGSI) January 10 Put Options

Judging by today’s activity which was a bit lighter than yesterday’s, we can see many are still extremely bullish on the U.S. Dollar. The November 23 Calls on the UUP traded over 200,000 contracts today making it over 550,000 in the past two days. The UUP spiked at about 2:30 PM and this particular call more than tripled in value from yesterday’s close. Also we can see that speculation on a stronger U.S. Dollar has poured into the December option contracts. With a huge up day it is not unusual to see more put betting on the S&P SPDR (SPY) than calls, but I was startled to see that such heavy calls traded for the November 44 strike on the Q’s (QQQQ), this would indicate to me someone thinks the techs will continue to outperform the S&P 500 in the coming months. It is very rare to see Caterpillar (CAT) trade among the most actives without a dividend being spun out, but this can be explained as a strong dollar trade as well. Let’s assume the dollar gets stronger and exports decrease, which is a big part of Caterpillar’s business right now. The volumes for the two months are almost identical today, which would indicate to me a trader is expecting a stronger dollar sooner rather than later, and decided to purchase the December puts while selling the February puts for a net credit of more than $100 per contract. Both contracts traded over 60,000 today which is extremely high! This seems like it would be a very good play if the dollar gets stronger sooner rather than later, or does not move too much by December expiration.

I took advantage of the strength in the market today and bought some puts on both the S&P SPDR (SPY) and Dow Diamonds (DIA). If we get an extremely ugly number tomorrow (again it will be ugly period, but anything over 10%) I think we could see a very big sell off. However if the number comes in better than expected, I think we’ll see a nice rally. I will use strength to close many of my short put positions I have opened in the past week, and weakness to sell puts on some stocks like American Express (AXP), Buffalo Wild Wings (BWLD), Palm (PALM), Perfect World (PWRD), Rackspace (RAX), and Research in Motion (RIMM). I am also looking at adding to my Natural Gas Position on weakness. Happy trading!