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Downside play in volatility fund

Chris McKhann (chris.mckhann@optionmonster.com)

A bearish spread is targeting the iPath S&P 500 VIX Short-Term Futures Note.

Total option volume in the VXX tops 144,000 contracts so far today, already well above its full-session average of 114,350 for the last month. Leading the action is a large put ratio spread .

optionMONSTER systems show that a block of 9,400 May 42 puts traded for $3.05 in volume above previous open interest of 4,688 contracts while a print of 18,800 May 40 puts changed hands for $1.75 against open interest of 30,339.

The VXX comprises the two nearest-month VIX futures, which are typically higher than the spot volatility index. That makes for a structural headwind that is much like an option's time decay , which so many traders try to capitalize on through various put strategies. (See our Education section)

The VXX is down 1.14 percent to $41.67 this morning. The exchange-traded note dipped to $41.45 a few minutes ago, the lowest price since mid-February and not far off its all-time low.

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