Unusual downside spread hits VXX

optionMONSTER

An unusual combination spread was one of the biggest trades in the iPath S&P 500 VIX Short-Term Futures Note yesterday.

optionMONSTER systems show that a trader sold 12,000 September 28 calls for 0.34 and, at the same time, bought 24,000 Weekly July 16 puts that expire in two weeks. The volume at each strike was above the previous open interest, so it is new positioning.

This combination trade is using the sale of the calls to more than offset the purchase price of twice as many of the puts. It takes advantage of the structure of the VXX, which is composed of the two nearest-month VIX futures, which are usually higher than the spot volatility index. This means that the VXX will lose value even if the VIX is flat. (See our Education section)

The VXX fell 2.03 percent to $17.84 yesterday, a record low. More than 446,000 VXX options traded overall, well above its daily average for the last month. 

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