Volatility fund draws large put spread
Chris McKhann | firstname.lastname@example.org
The iPath S&P 500 VIX Short-Term Futures Fund is down another 5 percent this morning to trade at $47.68. It is down 20 percent from last week when it neared $60, its highest level since October 2010.
The big trade in VXX so far this morning in a put ratio spread. A trader bought 2,500 October 46 puts for $1.89 and sold 5,000 October 44 puts for the bid price of $1.07 at the same time. The volume at both strikes was more than open interest, so this is a new postion.
The trade takes a maximum profit if VXX drops to $44 by expiration. Given the strikes used, the position will still be profitable if the VXX remains above $46, though it will stand to make just the $0.25 credit.
If the VXX drops below $44, the trader faces assignment and the obligation to buy shares. The VXX was below $44 on Sept. 21 and was down at a low of $42.12 that day.