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Nov-06-2009REFILE-Deutsche Bank unit files for 100 mln new UUP shares(topic overview)
CONTENTS:
- Just hours before the Federal Reserve announced plans Wednesday to maintain the federal-funds target rate at current levels, options traders rallied around the PowerShares DB U.S. Dollar Index Bullish Fund, pulling the trigger on large transactions valued at hundreds of thousands of dollars. (More...)
- Trading in the exchange-traded fund, which tracks the performance of the U.S. dollar index against a basket of currencies, was briefly halted on Thursday. (More...)
- Hours before the Federal Reserve announced plans to keep the federal fund target lending rate at current levels, options traders poured into UUP, reports Tennille Tracy for The Wall Street Journal. ( ETFs to play the Fed’s move ). (More...)
- Newell Rubbermaid ( NWL - news - people ): Shares of the global marketer of consumer and commercial products edged 1% higher Wednesday to $14.28, but options activity on the stock suggests shares may continue to trend upward. (More...)
- The call activity could also suggest investors expect higher volatility surrounding the value of the dollar in the short term and thus, boost call premiums, Wilkinson said. (More...)
- Below is a press release in part from DB Commodity Services regarding a filing to issue more shares in UUP. (More...)
- I honestly see myself as being duped by the activity, as the logic made sense enough. (More...)
- Some players appeared to have bought calls as a hedge to protect a portfolio of positions should the dollar start to strengthen and commodity and equity prices weaken. (More...)
- NWL's shares were trading at around $15.50 on Oct. 22, 2009, before the market buckled and sent the stock back down to $13.96. (More...)
- UUP has been seeing trading volume with moves valued at hundreds of thousands of dollars. (More...)
SOURCES
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Just hours before the Federal Reserve announced plans Wednesday to maintain the federal-funds target rate at current levels, options traders rallied around the PowerShares DB U.S. Dollar Index Bullish Fund, pulling the trigger on large transactions valued at hundreds of thousands of dollars. The volume of trades in the fund jumped to 12 times the normal level, with investors picking up 319,000 calls that allow them to buy the shares and 2,000 puts. [1] The ETF Professor noted surprising options activity in the PowerShares DB U.S. Dollar Index Bullish (NYSE: UUP ), which tracks the U.S. dollar index. More than 106,000 November 23 calls have changed hands today, but with the Fed leaving rates unchanged, those calls aren't likely to get the near-term boost traders were hoping for.[2]
As Jud Pyle scanned the SideWinder this morning, looking for big options action on the open, he came across the PowerShares DB U.S. Dollar Bullish ETF ( UUP ). Five minutes into the start of trading, with the UUP having gapped lower below $22.60, 22,000 of the November 23 calls traded higher on the day signaling right away that this was a buyer. By 10:00 AM Eastern Time, more than 100,000 of these calls had traded, most on the offer price at 15 cents with the UUP down about 15 cents. Open interest in this strike is just over 40,000, so this should be seen as a very large trade, especially with less than three weeks to November expiration.[3] At 11:00 AM, volume in the November 23 calls hit 150,000 and then the December 23 calls showed up with 9,700 on the tape. By noon, this same strike posted 228,500 contracts trading and volume on the December calls was almost 27,000. With open interest in the December calls just over 207,000, these traded for about 25-cents per contract. This bullish options action could actually be a hedge for an institutional portfolio with positions that would be exposed adversely to dollar strength, or it could be a speculative trade.[3]
An investor sold 100,000 out-of-the-money call options expiring in 16 days for a 10 cent premium in exchange for buying the same 16 strike calls expiring in December. The net premium of 3 cents almost eliminates the cost of this bullish trade and leaves the investor exposed to a far-faster rally for shares of home-building companies, while also positioning him long for a medium-term rally. If this ETF rallies above $16 for an 11% rally before the short call position expires, the investor would be forced to deliver a sizable amount of underlying shares. Essentially this short sale is purely a funding vehicle to facilitate the long December call position.[4] "In the long term, the additional supply of shares could put a lot of downward pressure on the price," Cook said. Investors purchased the fund's call options this week, notably the November $23 UUP call strike, which was the most actively traded option for the second straight day.[5]
NEW YORK, November 5, 2009 '' DB Commodity Services LLC today announced it has filed a registration statement with the U.S. Securities and Exchange Commission (SEC) to register 100,000,000 additional shares of PowerShares DB U.S. Dollar Index Bullish Fund (NYSE Arca: UUP ) in order to meet investor demand.[6] NEW YORK (Dow Jones)--Deutsche Bank AG (DB, DBK.XE) said Thursday that the PowerShares DB U.S. Dollar Index Bullish Fund (UUP) had run out of new shares and wouldn't be able to issue any more.[7]
After the fund ran out of available shares, trading in PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP ) was halted today at 1:23 p.m. ET until a filing with the SEC could be made. An application for 100 million additional shares was filed and the fund began trading again at 1:51 p.m. ET. As long as no new creation baskets can be issued, UUP runs the risk of trading at a premium to its net asset value (NAV).[8] PowerShares DB U.S. Dollar Bullish ( UUP - news - people ): There was huge volume Wednesday in this exchange-traded fund that tracks the U.S. dollar index value ahead of Wednesday's FOMC statement.[4] PowerShares DB U.S. Dollar Index Bullish (UUP) rose 0.62% to 22.57 in more than three times average volume. It had fallen to a 15-month low last week and may be rebounding from a.[9] The PowerShares DB U.S. Dollar Index Bullish ETF ( UUP ]] UUP ) is seeing a second day of heavy trading Thursday.[10] Reports this afternoon regarding the maintenance of the DB U.S. Dollar Index Bullish fund ( UUP ) resulted in shares of the listed currency basket being the subject of a trading halt before resuming the day at markedly, well for a currency product, higher levels.[9] CHICAGO, Nov 5 (Reuters) - DB Commodity Services LLC, a subsidiary of Deutsche Bank AG, said on Thursday it is seeking regulatory approval for an additional 100 million shares in the DB U.S. Dollar Index Bullish Fund ( UUP.P ) to meet investor demand.[5] Shares of the PowerShares DB U.S. Dollar Bullish Fund ( UUP.P ), which tracks the performance of the dollar index against a basket of currencies, slipped 17 cents to $22.51.[11]
The bulk of the action in the PowerShares fund appears to have been driven by professional investors who emerged to buy options in batches of 10,000 or more, and many of the transactions cost $150,000 and up. Nguyen Ahn Thu, Darcy Crowe, and Will Conners for The Wall Street Journal report that although the U.S. dollar has lost value, it's still king on the black market in foreign countries. It's estimated that as much as 75% of U.S. notes in circulation are held outside the United States, and most of that is in the underground economy. Residents of poorer countries, such as Venezuela, prize the dollar for its inflation-protection ability against weaker local currencies. ( Other reasons foreign countries like a strong U.S. dollar ).[8] Options action surged in the UUP exchange-traded fund today as investors positioned for more strength in the U.S. dollar.[12]
In the options market, however, sentiment was "decidedly bullish," said WhatsTrading.com option strategist Frederic Ruffy as investors aggressively bought UUP call options before and after the Fed's Federal Open Market Committee statement. "The fact that investors continued to buy call options in the fund after the FOMC statement suggests they expect the dollar to rebound regardless of what the Fed had to say today," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. "Of course, a hint of raising interest rates from the Fed would have suited their call positions."[11] Investors expect the Fed 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. Wednesday's 155,000 call options bought for tiny premiums ranging between 10-15 cents per contract smacks of a large institution placing a sizable gamble that change might be in the air either in what the Fed says this afternoon or for a more general change of heart toward the dollar before expiration on Nov. 20.[4] Such an outlook for the dollar at a time of modest recovery has created a weak fundamental backdrop for the greenback. 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.[13]
Rubbermaid-bulls bought nearly 5,000 calls at the November 15 strike for an average premium of 34 cents apiece. Another 2,000 calls were coveted at the December 15 strike where investors shelled out 60 cents per contract.[4] According to Reuters data, the November $23 call strike attracted volume of 330,279 contracts, more than eight times the existing positions held by investors at the close.[11]
The action came in large blocks hitting at the offer and shortly before the Fed announcement, more than 250,000 contracts traded in the strike price. The call action persisted after the Fed signaled no real changes to its low rate policy and the fund's shares edged modestly lower in afternoon action, Ruffy said.[11] In all, about 432,000 UUP call contracts traded nearly 9 times the average daily turnover, according to Trade Alert. That turnover topped the 403,000 calls traded on Wednesday, which was nearly 12 times the norm, as the Federal Reserve left interest rates unchanged, as expected.[5] Overall volume in the UUP swelled to 12 times the average daily turnover with about 403,000 calls traded versus 2,822 puts, according to option analytics firm Trade Alert.[11]
Options activity in UUP is triple the daily average and trade in the November 23 calls has risen to double open interest. While this appears to be an outright bullish bet on the greenback, the Professor cautions it could also be a hedge on a long position in gold or oil.[2]
"The demand for UUP NOV 23 calls the past week may be related to a Hedge Fund taking a shot on the Dollar bottoming out. Open interest in these calls has skyrocketed the past week and is registering nearly 300k contracts or nearly $30 million in underlying value. As customers buy these calls, market makers who sell them must buy stock to hedge these call sales.[6] UUP is up 39 cents to $22.90 and the December 23 calls, which traded 330,000X yesterday, are seeing another 157,000 contracts traded day.[10]
Priced at $0.13 and implieds near 16%, the activity spearheaded by one offer side 30,000 print is obviously making a spec play that equity traders may find hard to swallow, if proven presciently correct." In today's session at its highs of 23.15 and "UUP" more than 2.5%, those same calls fetched as much as $0.40 with boatloads for several minutes trading at $0.35 per contract or nearly 170% more than the going rate spied in my daily brief. Personally, I'd love to hear something more on this matter, other than the cheers of raised high-fives in some corners of the trading universe.[9] Insider trading of course is most often associated with publicly traded companies. At its heart is the part involving non-public information. I believe yesterday saw this type of incident involving heavy out-of-money call buying in UUP. I'm sure there were innocent investors involved either making their own decision or simply riding those "heat-seeking" coattails of larger traders.[9]
UUP is trading at four or five times normal volume today, and until new shares are granted, the fund could continue to trade at a premium. Investors who aren't comfortable with the premiums should wait until new shares are issued if they plan to buy the fund.[8] 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.[13] Issuance of the new shares in the fund requires approval of the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and the National Futures Association, DB Commodity Services said in a statement.[5]
The bullish dollar exchange traded fund (ETF) has pulled in so much interest recently that trading was briefly halted today so an application for more shares could be filed with the Securities and Exchange Commission (SEC).[8] 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.[13] With the price of the ETF 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 Wednesday would automatically boost the index and therefore the value of this sizable set of trades. Jim Oberweis' readers and clients tripled their money in Starent Networks (STAR) before Cisco's acquisition.[4]
Trading in the exchange-traded fund, which tracks the performance of the U.S. dollar index against a basket of currencies, was briefly halted on Thursday. [5] CHICAGO, Nov 4 (Reuters) - Option traders on Wednesday appeared to be betting that the dollar will recover as they aggressively scooped up call options in an exchange-traded fund tied to the U.S. dollar index.[11] Traders flocked to an exchange-traded fund that tracks the U.S. dollar, taking mostly bullish positions.[1]
Hours before the Federal Reserve announced plans to keep the federal fund target lending rate at current levels, options traders poured into UUP, reports Tennille Tracy for The Wall Street Journal. ( ETFs to play the Fed’s move ). [8] Stock ETFs rallied across the board while Treasuries and the dollar skidded as the Federal Reserve said the recession appears to be waning. It said it would keep the key bank lending rate at a record low near zero for "an extended period" to help recovery.[9]
The dollar fell in choppy trading against most major currencies after the Federal Reserve left interest rates unchanged, as expected, and said it intends to keep interest rates low for some time.[11] Commodities, every sector and global markets opened strong Wednesday on uplifting employment and industrial productivity news. Nearly everything lost momentum after the Federal Reserve announced it's leaving the benchmark interest rate unchanged at nearly zero.[9]
Newell Rubbermaid ( NWL - news - people ): Shares of the global marketer of consumer and commercial products edged 1% higher Wednesday to $14.28, but options activity on the stock suggests shares may continue to trend upward. [4] H.J. Heinz ( HNZ - news - people ): A stampede of bullish investors flooded the November contract on the condiment company Wednesday as shares of the ketchup maker rallied 1.5% to $40.58.[4] The net cost of the trade amounts to just 60 cents and provides maximum potential profits of $4.40 per contract if shares of the EWZ settle at $65 by expiration next month.[4] Traders long the calls may amass profits if shares trade above the break-even price of $41.44.[4]
RIMM authorized a share repurchase of up to $1.2B. RIMM is expected to report Q3 EPS on December 17. RIMM November option implied volatility is at 48, December is at 57; verses its 26-week average of 51, according to Track Data, suggesting larger December price movement.[14] UUP closed at $22.51. UUP November option implied volatility is at 15, December is at 13; near its 26-week average of 15 according to Track Data.[14]
UUP total option volume on November 4 was 403,534 contracts, according to Track Data.[14]
Volume in the calls ripped to 106,168 contracts, more than twice existing open interest.[12] Verbatim, "Bulls appear to be out in force with heavy trading in a "well bid" out-of-money November 23 call contract.[9]
Ruffy said one player bought 50,000 November $23 calls at a premium of 15 cents apiece. Others sought a little more time and bought the December $23 call strike rather than the front-month calls.[11] Traders scooped up approximately 6,000 call options at the November 41 strike for 44 cents premium apiece.[4]
The call activity could also suggest investors expect higher volatility surrounding the value of the dollar in the short term and thus, boost call premiums, Wilkinson said. The Fed said in its statement that while economic activity has picked up, consumer spending remained constrained by job losses and tight credit. [11] The move to add shares comes amid a two-day surge in the fund's call activity as many investors appeared to use the calls as a hedge on the U.S. currency.[5] "Investors have been showing an increasing interest in the fund as the recent decline in the dollar created an opportunity to gain exposure to the U.S. currency," said WhatsTrading.com option strategist Frederic Ruffy.[5]
The fund's shares move up when the dollar strengthens relative to other major currencies. Since October, the dollar has underperformed against most major currencies and UUP is down 17 percent from its November 2008 high of $27.14.[11] A shortage of supply appeared to drive the fund's shares up on Thursday rather than the overall bias on the dollar's strength, said Dan Cook, senior market analyst at brokerage firm IG Markets in Chicago.[5]
Below is a press release in part from DB Commodity Services regarding a filing to issue more shares in UUP. [6] The mad-dash for out-of-the-money calls suggests investors expect Heinz's shares to continue on the up-and-up through expiration.[4] Apparently call-buying investors expect shares to rebound to at least the break-even price of $15.60 by expiration in December.[4]
Sun Micro ( JAVA ) is down 4 cents to $8.28 and the Nov 8 - Jan 6 put spread trades 15000X. An investor pays an average of 3.5 cents and is possibly rolling a position in long puts from Nov to Jan, and from the 8 to the 6 line.[10] SBUX is up 49 cents to $19.70 and options volume is running 4X the average daily, with 25,000 calls and 23,000 puts traded so far.[10] Trading in the options market is running about the typical levels, with 4.8 million puts and 6.2 million calls changing hands so far (a ratio of.77, compared to a 22-day average of.80).[10] All data delayed by 15 to 20 minutes unless otherwise indicated. Both are wholly owned subsidiaries of OptionMonster® Holdings, Inc. Trading in securities and options can be speculative in nature and involve risk. tradeMONSTER™'s system response and access times may vary due to market conditions, system performance, and other factors.[12] Options data for Thermal Imaging provided by Wolverine Trading Technology, LLC. Market data powered by QuoteMedia, fundamentals by Hemscott.[12]
I honestly see myself as being duped by the activity, as the logic made sense enough. That's exactly why it would have been such a grand play within the scope of insider trading. What's also very much apparent, regardless of whether illicit activity was involved or not, is going forward, I'm giving UUP much less credit for having the potential to act as a market mover for equity investors given its physical inefficiencies. [9] Investors early on Wednesday started to pile into the November UUP $23 calls.[11] The UUP recently has been a favorite among investors and moves up when the dollar strengthens relative to other currencies.[5]
The ICE Futures U.S. dollar index.DXY, which measures the dollar's value against a basket of six other major currencies, fell 0.83 percent on the day to 75.751, retreating from Tuesday's one-month high of 76.817.[11] October 8, 2009 The U.S. dollar is once again under scrutiny. The G-7 discussed possible changes that would affect global currencies at its meeting this week.[8] Commodity ETFs rallied across the board Monday as the U.S. dollar fell to a one-year low against other major world currencies.[9]
The USDX® futures contract is designed to replicate the performance of being long the U.S. Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.[14] With the U.S. Dollar so closely-watched of late and Wednesday's FOMC policy meeting potentially impacting rates and the closely-linked Dollar - trying to point fingers at any of yesterday's still suspiciously large buyers, would prove all the more tricky.[9]
Some players appeared to have bought calls as a hedge to protect a portfolio of positions should the dollar start to strengthen and commodity and equity prices weaken. [5] The upper wing was placed at the December 70 strike where another 10,000 puts were bought for an average premium of $3.44 each.[4] The central December 65 strike housed the body of the butterfly, which involved the sale of 20,000 puts for about 1.93 per contract.[4]
NWL's shares were trading at around $15.50 on Oct. 22, 2009, before the market buckled and sent the stock back down to $13.96. [4] The unemployment rate is expected to improve to 6.5 percent, from 6.6 percent. Cisco Systems is helping both the Dow and the NASDAQ. Shares are up 68 cents to $23.97 after the tech bellwether reported earnings that beat Street estimates and the company's CEO also noted that a recovery in the industry is "well underway."[10]
UUP has been seeing trading volume with moves valued at hundreds of thousands of dollars. [8] Price and Volume data is delayed 20 minutes unless otherwise noted, is believed accurate but is not warranted or guaranteed by Interactive Data Corp. Real Time Services and is subject to Interactive Data Corp. Real Time Services terms.[9] OptionsHouse, LLC is affiliated with www.ONN.tv (Options News Network) through their parent company, PEAK6 Investments, L.P. Brokerage services are offered through OptionsHouse, LLC. Options involve risk and are not suitable for all investors.[3] Wow! You can't make up this much two-way action except with a roulette wheel. Once again shorts are squeezed and this two-way action is difficult for most investors to either trade or comprehend.[6]
SOURCES
1. Dollar ETF Lures Traders - WSJ.com
2. Fed Disappoints UUP Options Bulls | Benzinga.com
3. Dollar Bulls Buying UUP Calls | ONN.tv
4. Getting Bullish On Builders - Forbes.com
5. REFILE-Deutsche Bank unit files for 100 mln new UUP shares | Funds | News | Reuters
6. Dave Fry's Market Comments For Nov 5, 2009
7. UPDATE: Deutsche Bank Halts Issuing New Shares Of Dollar ETF - WSJ.com
8. Bullish Dollar ETF Temporarily Stops Trading | ETF Trends
9. Investors.com - Options In Focus: "UUP, UUP and Away"
10. Thursday Options Recap -- Seeking Alpha
11. Traders circle bullish call options in dollar ETF | Currencies | Reuters
12. Call buying surges in dollar ETF
13. A Suspicious Dollar Trade -- Seeking Alpha
14. Options Update: PowerShares DB US Dollar Index Nov-Dec call spreaders active - BloggingStocks
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