Friday, June 18, 2010

VXX (VIX Short Term ETN) - Vol of Vol Buyer Near Term on Pattern

VXX is trading 24.92, down 2.3% with IV30™ down 2.8%. The LIVEVOL™ Pro Summary is below.

The ETN has traded over 14,700 options in the first hour. 10,000 contracts traded on a July 26 straddle purchase (a purchase of vol's vol). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size). The puts may not be.

Trade Stats
Buy 5,000 July 26 puts $2.10
Buy 5,000 July 26 calls $1.65
Max Loss (total outlay) = 5,000 * 100 *($2.10 + $1.65) = $1,875,000

You can see the VIX is ~23 down hard from nearly 50 recently. It has followed a pattern where it bounces up and down between mid teens to ~45. Each time it hits an extreme, it moves away form that level hard.

The Charts Tab (6 months) is below (click to enlarge).

Finally the Skew Tab snap (click to enlarge) is included. It shows the vol level of the 26 strike.

If the VIX pattern continues, the market will rise a bit from here, the VIX will hit 17 (ish) then the market will find fear (Europe?), and the VIX should pop. This straddle purchase essentially bets on this scenario.

This is trade analysis, not a recommendation.

Legal Stuff:

1 comment:

  1. MILES HOFFMAN, CFAJune 18, 2010 at 8:51 AM

    Addendum to "This straddle purchase essentially bets on this scenario."

    Addendum is "... BY JULY ex !"