Thursday, November 5, 2009

UUP Is A Broken Instrument: Profit With Options

UUP announced today that it will issue another 100M units to "meet investor demand". UUP jumped today. UUP is supposed to track a dollar index, it cannot jump. Its counterpart, UDN did not jump.

This similar to what UNG went through when t was trading above its NAV because there were not enough shares. Since then, UNG has come down to earth and is down about 20%. Unless the USD goes up, UUP will likely suffer from the same fate.

Here are straddles for November, December, and March (StraddlesCalc)

(please click to enlarge)

Here is the chart for the Nov. 23 calls today:

And this is UUP vs UDN as of 2:45PM: Completely broken.

UUP: "The Master Fund invests in futures contracts (the DX Contracts) with a view to tracking the changes, whether positive or negative, in the level of the Deutsche Bank US Dollar Index (USDX) Futures Index "

This is not advice. Options are extremely dangerous and may cause 100% loss. Please do your own due diligence.

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