By Doris Frankel

CHICAGO, Nov 5 (Reuters) - DB Commodity Services LLC, a subsidiary of Deutsche Bank AG, said on Thursday it is seeking regulatory approval for an additional 100 million shares in the DB US Dollar Index Bullish Fund to meet investor demand.
The move to add shares comes amid a two-day surge in the fund's call activity as many investors appeared to use the calls as a hedge on the U.S. currency.
Issuance of the new shares in the fund requires approval of the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and the National Futures Association, DB Commodity Services said in a statement.
Trading in the exchange-traded fund, which tracks the performance of the U.S. dollar index against a basket of currencies, was briefly halted on Thursday. The shares rose 1.91 percent to $22.94 after hitting a high of $23.15.
The UUP recently has been a favorite among investors and moves up when the dollar strengthens relative to other currencies.
"Investors have been showing an increasing interest in the fund as the recent decline in the dollar created an opportunity to gain exposure to the U.S. currency," said WhatsTrading.com option strategist Frederic Ruffy.
But a shortage of supply appeared to drive the fund's shares up on Thursday rather than the overall bias on the dollar's strength, said Dan Cook, senior market analyst at brokerage firm IG Markets in Chicago.
"In the long term, the additional supply of shares could put a lot of downward pressure on the price," Cook said.
Investors purchased the fund's call options this week, notably the November $23 UUP call strike, which was the most actively traded option for the second straight day. The call strike on Thursday attracted volume of 213,542 contracts, according to Reuters data.
In all, about 432,000 UUP call contracts traded nearly 9 times the average daily turnover, according to Trade Alert.
That turnover topped the 403,000 calls traded on Wednesday, which was nearly 12 times the norm, as the Federal Reserve left interest rates unchanged, as expected.
Some players appeared to have bought calls as a hedge to protect a portfolio of positions should the dollar start to strengthen and commodity and equity prices weaken.
"Many institutional investors are short the dollar right now and are probably hedging their bets by buying cheap call options in the UUP," said Scott Snyder, chief options strategist at TOS Advisers, a subsidiary of broker-dealer thinkorswim Inc.
Other investors booked profits on bullish positions initiated on Wednesday while others may have bought at-the-money calls to insure their right to purchase the underlying shares of the fund.
"By purchasing calls, they now have the right to buy 100 shares per call contract even if more shares are not immediately issued in the future," Ruffy said.
The ETF, created in February 2007, is managed by DB Commodity Services and distributed by Invesco PowerShares Capital Management LLC.

(Reporting by Doris Frankel; editing by Carol Bishopric) Keywords: UUP/FILING (doris.frankel@thomsonreuters.com; +1 312 408 8752; Reuters Messaging: doris.frankel.reuters.com@reuters.net)

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