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Spread sees rise in volatility note

Chris McKhann (chris.mckhann@optionmonster.com)

A large trade is looking for gains in the iPath S&P 500 VIX Short-Term Futures Note.

optionMONSTER systems show that a trader bought 24,000 December 11 puts for $0.29 and sold 24,000 December 13 puts for $0.89. Volume was above open interest at each strike, indicating new activity.

This put credit spread is looking for a rise in the VXX, which comprises the two nearest-month VIX futures. The trader takes in $0.70, which will be the profit if the VXX is above $13 at expiration. The maximum loss of $1.30 would be realized with the VXX below $11 at that time. (See our Education section)

It should be remembered that the VXX should be expected to go to zero over the long term. It is currently at $16.41, from a start of $1,600 back in the beginning of 2009. It has already undergone two reverse splits and will need more to continue to stay in action over the long term. It was at an all-time low of $14.01 at the start of the month.

More than 156,000 VXX options have changed hands this morning, already surpassing its full-session average for the last month.

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