Similar to my FTSE trade over the last couple of days, I have just done the following on the Dow:
Sold $10/point Dow January 13100 Call @ 619
Bot $48/point Dow January 12800 Put @ 129
For zero premium (well, it cost me 2 bucks...)
6 month DOW Chart
US stocks are holding up far too well on bad news lately (other than the financials). My guess is that this is a bet on the weak dollar supporting earnings of exporters. An interesting post at Bespoke shows that half the Dow stocks are up 15% or more on the year, and glancing over them, the bulk certainly seem to have overseas exposure.
It seems to me that the dollar is oversold against the Euro/Yen/Sterling and is due a strong rally back, as it is one of the biggest one-way trades out there. Also I think that since that whilst the poor state of US fundamentals is obvious, the equally poor state of Euro/UK fundamentals is not. Well now that the UK housing market is starting to crack (houses have just dropped for 4 months in a row, and the last reading was the fastest pace in 12 years), the Irish downturn is firmly in place, Spain has also turned down, and I'm sure other markets will start to show the same signs soon, this may cause the "obvious" trade of selling the dollar to buy the Euro/Sterling to fade. And it seems to me that positioning is extreme out there (some days I feel like I'm the only dollar bull...).
So a dollar rally will take away the last supporting argument for owning DOW stocks, as far as I can see.
Selling the call deep in the money as I am happy to be short this market anyway, and using it to give me nearly 5:1 leverage on the Put.