Volcanic ETF Plays

The dollar is a high probability play for the Icelandic volcano but other ETFs may see more volatility if the situation doesn't improve.
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NEW YORK (TheStreet) - The U.S. dollar is a high probability play for the Icelandic volcano spraying ash over Europe, but other ETFs may see more volatility if the situation doesn't improve.

Assuming that the situation continues to improve, the impact of the eruption is still significant. Losses for the airlines are estimated at over $1 billion and European airlines are looking for compensation from the government as the industry slams what it believes was an overly cautious flight ban. Airlines also said that Europe did not do enough to test the air quality to see if was truly unsafe to fly.

Iceland Volcano ETF Plays

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If the worst is past, investors can still benefit from holding

PowerShares DB U.S. Dollar Index Bullish Fund

(UUP) - Get Report

. Sovereign debt concerns in Europe are not helped by the disruption in economic activity and Greek bond yields increased as European bailout negotiations were delayed by the ash cloud. This may be a short-term overreaction to the news, but the economic effects will be real and it makes an already negative debt situation a little worse.

The U.S. dollar is the conservative play here since things appear to be winding down, but if the volcano isn't finished, there are some other ETFs that may be more greatly affected. First up is

Claymore/Delta Global Shipping

(SEA) - Get Report

.

One of the positives of the eruption is that it has blown high enough to leave the ground clear of ash. In 1783, a major eruption of Laki in Iceland led to widespread famine and fluorine poisoning in Iceland and caused weather disruption in Europe. However, the flipside of the higher ash is that it is directly in the flight path of major air routes, and that has disrupted commerce. In Kenya, for instance, 20% of exports are fresh flowers, mostly exported to Europe. For now, fresh produce is most affected, but if the volcano were to continue to hamper flights, many industries could be affected. Alternative routes would be found though, and shipping by sea will be one cost effective option.

Another positive of the current eruption is that the ash hasn't gone high enough to disrupt global climate. However, history records three eruptions of Eyjafjallajökull and each one was accompanied by the eruption of the much larger Katla. If Katla erupts and sends particulate into the stratosphere on a large enough scale, it would stay in the atmosphere much longer and could have an effect on global temperature. In that case, investors may do well with

PowerShares DB Agriculture

(DBA) - Get Report

or

iPath DJ-UBS Grains ETN

(JJG) - Get Report

, as growing seasons may be shortened.

Finally, a confluence of factors mean the water supply is unlikely to be affected by this eruption, but past eruptions have polluted water supplies in Iceland. In a worst case scenario, the holdings in a fund such as

PowerShares Global Water

(PIO) - Get Report

may see their services called upon.

Right now, things appear to be returning to normal in Europe and disaster has thankfully been averted. Beyond some company and industry specific effects, the broader impact on the economy will be manageable, but still bad news for a European economy suffering from acute debt problems.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.