This is a weekly column focusing on ETF options by Scott Nations, a proprietary trader and financial engineer with about 20 years of experience in options. More than million options on ETFs were traded in February, and because ETFs and options are among the fastest-growing financial vehicles in the world, it only makes sense to combine the two. This column highlights unusually large or interesting ETF options trades to help readers understand where traders believe a particular ETF may be headed.

In doing so, Nations examines the underlying options strategy. One the one hand, they can invest in the U.

Increase Your ETF Yields with a Strangle

That yield seems to be headed higher given speculation that the Federal Reserve is ready to start raising the fed funds rate. That rate, unlike rates in the U. But Americans have an advantage: If you want to invest here, you need dollars, and we already have them.

Currency Options | Scottrade

If you live somewhere else, you need to begin by selling whatever currency you own and buying dollars. It has rallied impressively. This article explores the possibility, through the lens of the ETF options market, of that rally having gone a bit too far. One ETF that allows traders to speculate on the performance of the dollar is the PowerShares DB US Dollar Bullish ETF UUP B It has rallied by more than 23 percent during the past 52 weeks, as the chart below shows.

UUP is based on a basket of six foreign currencies, with the majority of the index made up of the euro.

UUP, to be clear, is designed to appreciate as the dollar appreciates against these currencies. In fact, UUP has never had a month performance this strong since its inception in February , which causes traders to wonder if UUP has come too far. So, did the market overshoot to the upside now that these moments are upon us?

How can we safely fight the trend if we think the dollar did overshoot? He managed this risk by buying put options on UUP. These put options will be profitable only if UUP falls by at least 5. The potential profit is huge since our trader bought , of the UUP puts, making it one of the largest ETF option trades in recent memory.

How do we know? Because a little simple options math says the likelihood of those puts expiring worthless is about 84 percent.

Currency ETF

Options on ETFs are a great tool when making a countertrend trade like this one in UUP. At the time this article was written, the author held no positions in the securities mentioned.

Follow Scott on Twitter ScottNations. View the discussion thread. Skip to main content. Bet Against Dollar Rally With ETF Options March 19, Fixed-income ETF investors have some difficult choices to make these days.

Too Far, Too Fast? You can see the payoff for this put purchase in the chart below. Find your next ETF Asset Class: All Asset Classes Alternatives Asset Allocation Commodities Currency Equity Fixed Income. All Regions Asia-Pacific Developed Markets Emerging Markets Europe Frontier Markets Global Global Ex-U.

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