The set-up: Every time there are increased tensions with North Korea, the dollar takes a hit. This week was no exception, and while there was a solid rebound in the dollar on Wednesday that took back most of what was lost after the latest missile tests, the nervousness is still there.
Sadly, I don’t see the headlines going away, and it’s fair to expect that the dollar will be oversold on the news, testing support before bouncing back.
The play: I’m looking at options the PowerShares DB US Dollar Bullish ETF (UUP), thinking I will buy further-dated, in-the-money call options if UUP can hold its current level of $24.
10 contracts to start if it holds up above the 20 day simple moving average line by 3:30pm EST, if not i’ll wait
Specifically, I’m looking at the Dec. 15 $24 call options, planning to buy 10 contracts if it holds up above the 20-day simple moving average line by 3:30 p.m. EST. If it falls below, I’ll hold off. If I like the looks of this trade, I could add to the position, but that won’t be until next week at the earliest.
My plan here is to start shaving my profits when they hit/exceed 10 percent. I’ll stop out of the trade if UUP closes below Monday’s low of $23.81.
Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this article was published on RagingBull.com, he had never before traded shares or options in the UUP, but he was planning to purchase Dec. 15 call options in the ETF as described here.