Market News

December 14, 2016  Wed 8:14 AM CT

Traders are positioning for a possible drop in the PowerShares DB U.S. Dollar Index Bullish Fund.

The dollar has been rising steadily against other currencies, breaking to record highs along with the equity market since the presidential election. A variety of factors have contributed to the move, ranging from the prospect of rising interest rates to concerns about weakening economies overseas.

But yesterday our monitoring system detected the purchase of 30,000 March 26 puts in one print for $0.45. This is clearly a new position, as open interest in the strike was only 6,025 contracts before the trade occurred.

Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. These contracts are safer than shorting a stock directly, as the options limit the amount of cash that can be lost if shares rally. (See our Education section)

UUP rose 0.11 percent to $26.12 yesterday and is up 6 percent in the last three months. Overall option volume was about average in the fund, but puts outnumbered calls by a bearish 12-to-1 ratio.

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