Traders selling volatility in the VXX

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Traders are selling the volatility of volatility today.

More than 242,000 options have changed hands in the iPath S&P 500 VIX Short-Term Futures Note so far, though that is well below its daily average for the last month in this increasingly popular product. And traders are selling premium in this volatility product.

First a trader sold 5,000 March 10 puts for $0.76. That is a bet that the VXX will hold above $10 in coming months or that the trader is willing to buy it at that level.

Later in the morning we see lots of unusual action in the November 17 Weekly calls that expire at that end of that month. A trader sold 7,200 of those calls for the bid price of $0.18 in volume that was more than open interest.

It is interesting to note that the implied volatility of the puts is 66 percent and for the call it is 77 percent, while the 20-day historical volatility is 80 and the 10-day reading is 105 percent.

The VXX is down another 1.61 percent today to $12.80 after hitting a new all-time low of $12.61. It was above 17 last week and started February 2009 at 1600 after two reverse splits. The note is composed of the two nearest-month VIX futures, which are usually higher than the spot volatility index. That structure works against the note and pushes it toward zero.


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