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August 6, 2012  Mon 1:04 PM CT

VXX: SEE CHART GET CHAIN FIND STRATEGIES
The VXX volatility exchange-traded note is at another new low, and put trading dominates its option activity today.

The iPath S&P 500 VIX Short-Term Futures ETN is down 2.64 percent to $11.84, just off a new all-time low of $11.80 reached earlier in the session. It was above $22 two months ago, near $60 at its 52-week high in October.

Total option volume in the name tops 160,000 contracts, with puts outpacing calls by nearly 2 to 1. The most active strike was the September 10 puts with more than 23,000 traded, though at less than open interest of 34,000. They were mostly bought in large institutional blocks for $0.30.

The single largest trade, however, occurred when 6,870 December 8 puts were purchased for $0.44 against open interest of 8,696 contracts as 13,740 December 7 puts were sold in a single print for $0.20 at more than open interest.

So lots of put trading that appear to be looking for the VXX to continue to fall. This may be a view on a lower VIX, but that isn't necessary for the VXX to fall.

The VXX is based on the VIX futures, which usually carry premiums and are in contango, meaning that each successive futures contract carries a higher price tag. In addition, the daily roll in the VXX means that the fund is buying high and selling low every day, which clearly takes its toll on the fund.

The lesson: The VXX can be a great trade, but it should not be confused with an investment.
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