UUP Call Volume a Red Herring

• stevenplace
• October 26th, 2009

The dollar is having a good day.

Good volume in UUP, big weakness in EUR/USD, some weakness in AUD/USD. Some wiseguy came on the news today and talked about the dollar long the latest and greatest carry trade about to unwind.

Fine. All valid points. But UUP call volume? Not so much.

First saw the alert from Distressed Volatility via Dr. J (both good sources) about the big call volume today in the dollar-bullish etf.

Here’s what we had:

First, the volume relative to the OI not that great. But my point is this: who’s trading UUP options?

When you follow options order flow, you’re looking for big block trades for large traders or institutions that are much smarter than you. You want to be able to follow them in, albeit in a dark cloud because you may not know the true rationale of the trade.

If men with Deep Pockets are going to gain dollar bullish exposure, they are not going to play UUP. The options aren’t *that* liquid, and the volatility is WMT-esque.

Big money is going to get exposure via dollar futures or forex. UUP call volume is most likely retail pikers piling in on the “bottom.” You could also make the case for the UUP common volume as well.

Is there evidence coming out predicting further dollar strength? Yep, but this data point is not one of them.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: dollar, dx, uup

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