Mystery buyer(s) double money overnight in dollar fund

Some lucky buyer (or buyers) of a bullish dollar fund made a killing today when it suddenly ran out of shares and prices surged. Market wags are wondering if the SEC won’t have another case of insider trading on its hands.

The buying began yesterday; at the time many assumed an investor was either making a bet on Federal Reserve policy, to be announced later that day. Or possibly investors were hedging other positions.

But puzzlement turned into suspicion this afternoon after a 45-minute trading halt for the PowerShares DB US Dollar Index Bullish Fund, known as UUP in tickerland. The  fund then announced that it would issue 100 million more shares, pending SEC approval. When trading resumed, prices popped 1%. UUP ended the day 2.1% higher in unusually heavy volume (click on chart to enlarge).

Mysterious buyer(s) Nov 23 calls ahead of market-moving news and made a killing

Some traders on the StockTwits network are suspicious about the timing: Fundamentals on the dollar are unchanged and other currency instruments have not seen similar bursts in price or volume. The price of gold didn’t suddenly drop either. Market seer Karl Denninger calls its “blatant insider trading.” Here’s why:

SOMEONE came after the front month (November) $23 CALLs yesterday, with the underlying trading in the mid 22s. For 10-15 cents. Some 300,000 of them were bought yesterday.

They just spiked on the re-open for more than a clean double after UUP’s halt and some 60,000 of those contracts have, in the last few minutes, been sold. The “nutso premium” has since relaxed and is now “only” a clean double from yesterday’s 10 cent close.

Who could it be? The Pragmatic Capitalist jests: “(Galleon hedge fund manager) Raj is in jail so we can be certain this isn’t him.”

Looks like the SEC will be getting even more experience investigating suspicious trading.

Graphic from whatstrading.com