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Puts surge in volatility fund at new low

Chris McKhann (chris.mckhann@optionmonster.com)

The iPath S&P 500 VIX Short-Term Futures exchange-traded note collapsed to an all-time low yesterday as puts topped its option volume.

The VXX was down 4.61 percent to close at $19.32, even as the CBOE Volatility Index (VIX) was higher on the day. The VXX is based off the two nearest-month VIX futures, not the spot index reading, and has a daily roll.

The front-month March VIX futures were up 2.9 percent to close at 16, but they settle this morning. (See related story )

This means that the VXX is essentially entirely in the April VIX futures, which were down 4 percent to 19.20 yesterday. That is still a huge premium, and the VIX futures remain in steep contango with increasing premiums going out in time.

The VXX hit a 52-week high of $59.18 in October, but today's move pushed it back below the previous lows from last July.

Just shy of 330,000 VXX options traded yesterday--possibly a new record--compared with a daily average of 72,500 in the last month. Two of the three largest prints in the VIX options came in one spread spread.

A trader bought 13,359 April 19 puts for the ask price of $0.61, under the previous open interest of 42,731, optionMONSTER's Depth Charge shows. At the same time, he or she sold the same number of April 16 puts for $0.15. That volume was more than the previous open interest, so it was a new opening position.

This could be a trader rolling a short put position lower, but it looks more like an outright put spread that would profit with the VXX trading to or below $16 in the next month. Given the premiums in the futures, and that negative roll yield, the VIX would probably not even have to move lower for that goal to be reached.

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