On March 15, ICE Futures U.S. launched electronic trading of options on its Dollar Index futures contract. The exchange hosted a recent webinar discussing the benefits of trading these products. David Hightower, principal at Hartfield Trading and Senior Researcher at the Hightower Report, presented a variety of strategies using Dollar Index futures and options for traders, as well as his view of the U.S. dollar and commodity markets.

The U.S. Dollar Index is the most widely recognized benchmark for the value of the U.S. Dollar. It is tracked widely by the media, institutions and individual traders. The ICE Dollar Index Futures contract represents the dollar’s standing against a basket of six global currencies: the euro, the Japanese yen, the Canadian dollar, Swedish krona and Swiss franc.

“The electronic (U.S. Dollar Index) options offer a way to participate in an extremely volatile trade, and you can define risk,” said Hightower. Oftentimes, increased risk and reward go hand and hand, but if you can control one side of that equation, that creates some compelling benefits, he said.

As many commodities are priced in U.S. dollars, Hightower noted that the U.S. dollar has become a focal point in almost every major physical commodity market.

“I’ve heard seasoned, large commercial traders and hedge fund managers express exasperation that their particular market wasn’t following the fundamentals. I’d make the case that it’s temporarily not following the old fundamentals they are used to seeing the market react to, because we’ve become globalized,” Hightower said.

The Dollar Index is useful as a hedge vehicle, said Hightower, as it provides a measure for the ebb and flow of demand in perhaps 25 physical commodity markets. There are also indications that inflation should be priced in and out of the dollar, and that growth should be priced in and out of the dollar as well, he said.

Hightower provided a variety of dollar-based strategies for traders to consider using dollar index futures and options. In terms of his outlook for the U.S. dollar, he said it is still in a “flight-to-quality mode, meaning when people are afraid they buy the dollar and confident they sell the dollar.”

He said that by June or July, when the market participants start anticipating interest rate-hikes from the Federal Reserve, there could make a stiff appreciation in the dollar if the eurozone continues to be weighed down by these debt concerns, and the U.S. truly appears to be coming out of its malaise.

“Macroeconomic and interest rate differentials could be the next force to lift the dollar,” he said. “Over the last 15 or 20 years, the U.S. has not only managed to get itself into big problems, it’s also manages to get itself out of those problems, a lot of times quicker than others (countries) have.”

In sum, he said you can’t undersell the dollar. View the full webinar from ICE.

Contract Specs for U.S. Dollar Index Futures

Electronic trading hours (Mon-Thurs/Fri)
8 p.m. – 6 p.m. ET the next day
Open on Sunday night 6:00 p.m. ET
The trading platform is available 30 minutes before the opening for order entry.
Contract symbol DX
Quotation: Dollar index points, calculated to three decimal places .010 = $10
Tick size .005 – $5

View full contract specs at www.theice.com/usdx

Futures trading involves substantial risk of loss and is not suitable for all investors.