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Big trade looks for lower volatility

Chris McKhann (chris.mckhann@optionmonster.com)

A big put spread in the iPath S&P 500 VIX Short-Term Futures Note is looking for further declines.

optionMONSTER systems show that a trader bought 10,000 September 26 puts in one print for $0.87 and sold the same number of September 24 puts for $0.40. Volume was above previous open interest in each strike, so this is new positioning.

The trader is spending $0.47 on this vertical spread , which is the maximum amount at risk. The maximum potential gain is $1.53 if the VXX is below $24 at expiration in mid-September. (See our Education section)

The VXX is composed of the two nearest-month VIX futures, which are usually higher than the spot volatility index, so it tends to decline in bullish or flat equity markets. The VIX is down 2.71 percent to 12.22.

The VXX is down 1.76 percent to $31.80 in midday trading. The exchange-traded note hit an all-time low of $29.90 on Monday.

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