The filing came out Tuesday saying, oh gee, we might be running out of shares. We need to plan for more shares.

Today, UUP was halted because, well, they ran out of shares.

The surge in call activity yesterday might have been in reaction to the filing Tuesday. Some smart people that understand how ETFs work (they sometimes trade at discount or premium due to supply and demand) might have figured, well, if they’re running out of shares, we might want to buy calls and hedge that bet by actually trading the currencies.

Less supply + higher demand for UUP will push the value of shares above the NAV and create an opportunity.

In addition, the heavy call buying and huge open interest probably added to demand for UUP shares. As Adam Warner notes on his Daily Options Blog, “Did the call buyer know the creation problem was about to happen or did he actually cause the problem via his purchases? Interesting question, because if you can cause this yourself, that’s kind of scary. I mean $4 million (of calls) seems like the rounding error of a rounding error for a currency desk.”

http://dailyoptionsreport.com/blog/post/uup-uup-and-away/