A complex call spread leads heavy option in the iPath S&P 500 VIX Short-Term Futures Note today.
A trader sold 6,819 November 17.50 calls for $0.24 and, seconds later, bought 2,273 November 14.50 calls for the ask price of $0.67 to complete a 3-to-1 ratio spread . The trader takes in $0.05, which would be kept as profit if the VXX remains below $14.50 through that November expiration.
The maximum profit, however, comes if the VXX rises to the $17.50 level by that time. Above that, the trader is essentially short VXX shares, which in itself is a popular position these days. (See our Education section)
The trade is set up to avoid risk posed by the general nature of the VXX, which declines over the long term. The exchange-traded note is based on the two nearest-month VIX futures, not the volatility index itself, and those futures almost always carry premiums over the spot index. The strategy is also designed to profit from a potential volatility pop that could come with political disputes in Washington.
The VXX is down 0.94 percent to $13.76 in midday trading, just off its all-time low from last week. It was up near the $17.50 level at the end of August and, before that, in mid-July.
Total option volume in the VXX is above 153,000 contracts so far, already surpassing its full-session average for the last month.
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