Large trades look for lower volatility

Chris McKhann (
October 8, 2013

The iPath S&P 500 VIX Short-Term Futures Note is seeing heavy volume today, but the big bets are looking for limited volatility.

In the largest trade, optionMONSTER systems detected the purchase of 5,000 March 12 puts for $1.06. The volume was more than twice the previous open interest and suggests that the trader is looking for the exchange-traded note to fall to new lows by spring of next year.

The other big trade amounts to a call ratio spread that involves the November 17.50, 19, 20, and 22 calls. That position sees a potential pop in the VXX, but a limited one at the top of which he or she is willing to get short shares. (See our Education section)

These types of short strategies are popular with the VXX, which has historically had a distinct downward trend. The note is comprised of the two nearest-month VIX futures, which are usually higher than the spot volatiliity index, so the VXX declines.

The VXX is now at 16.50, up 1.82 percent. It hit an all-time low of $13.42 three weeks ago.

Total option volume in the VXX already tops 171,000 contracts, exceeding its full-session average for the last month.

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