How trader is betting on cap in volatility

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A large trader apparently does not believe that the VXX exchange-traded note will spike higher in coming months.

Total option volume in the iPath S&P 500 VIX Short-Term Futures Note has already topped 116,000 contracts today, reflecting the surging popularity of volatility-based trading products. Topping that action is the sale of 12,060 August 28 calls for $0.37 in a new position against no open interest.

Call selling in the VXX is usually done naked because of the historically poor performance of the note and its negative long-term expectation. The VXX is composed of the two nearest VIX futures, which usually carry premiums to the spot volatility index and, as such, tend to move lower over time. (See our Education section)

The VXX is down 2.81 percent this morning to $21.07. It was above $23 when the market sold off Monday, its the highest level since early March. Shares were at an all-time low below $18 a month ago.

The note started in early 2009 at 1600 (after two reverse splits). 

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