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What's behind heavy VXX put buying

Chris McKhann (chris.mckhann@optionmonster.com)

Traders are looking for the iPath S&P 500 VIX Short-Term Futures Note to continue its slide.

optionMONSTER systems detected the purchase of 7,859 January 13 puts for the ask price of $1.30 yesterday. Earlier in the session a a block of 6,000 August 15 putstraded for $0.64, also apparently bought. Volume was multiples of the previous open interest at each strike, so these are new positions.

The put buying in the VXX is not necessarily a bullish bet on the market. While the VIX does have a very high inverse correlation to the S&P 500 off which it is based, this exchange-traded note is its own animal.

The VXX comprises the two nearest-month VIX futures, which typically carry premiums over the spot volatility index that erode over time. For that reason, the VXX will decline in most market scenarios.

The VXX rose 0.88 percent to $18.43 yesterday but is still not far off Friday's record closing low of $18.03. More than 290,000 VXX options traded yesterday, 2.5 times its daily average over the last month. 

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