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Trader bets VXX will drop this week

Chris McKhann (chris.mckhann@optionmonster.com)

One trader is betting on a big short-term drop in the VXX volatility exchange-traded note.

optionMONSTER systems show that the biggest print in the iPath S&P 500 VIX Short-Term Futures Note this morning is in the June 18.50 puts that expire at the end of this week. A trader bought 20,000 of those contracts for the ask price of $0.03 in volume that was more than three times higher than the previous open interest, indicating that this is a new position.

The put buying is a bet that the VXX will fall sharply, clearly looking for a positive equity-market reaction to tomorrow's Fed announcement and remarks. (See our Education section)

The VXX comprises the two nearest-month VIX futures. The spot volatility index is at 16.86 today, while the June futures trade at 16.90 and the July contracts at 17.75.  So the bet here is that those July futures will fall sharply after the Fed news is out.

The VXX is trading at $20.28, down 0.5 percent on the day. It was up to $20.50 last week and hit an all-time low of $17. 97 a month ago.

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