VXX, VIX Options – Unusual Trading Activity – June 28, 2013
This week we’re taking a look at unusual options trading activity in iPath S&P 500 VIX Short-Term Futures ETN (VXX) and CBOE Volatility Index (VIX).
As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
iPath S&P 500 VIX Short-Term Futures ETN (VXX)
Opinions are varied over where volatility is headed in the near future. One large player doesn’t believe short-term volatility (as represented by VXX) is going to spike in the next couple months.
VXX is currently trading for $20.81 per share. The ETN’s down 7% over the past week. The current price is 16% above the 52-week low of $17.97 and 70% below the 52-week high of $69.20.
As you can imagine, there’s been a lot of action in VXX this week. One big trade had a trader selling 12,060 of the August 28 calls for $0.37. This trade reaches max profit if VXX close below $28 by August expiration.
As volatility can move rapidly, the trader must have confidence a spike isn’t going to occur in the near future. He or she is betting almost $450,000 that the $28 level won’t be breached (at least not for long) in the next eight weeks or so.
CBOE Volatility Index (VIX)
On the flip side, a huge call spread traded during the week in the VIX options chain. This trade is anticipating (or hedging against) a large move higher in the VIX.
The VIX is currently trading for $16.86. The shares are up 53% from the 52-week low of $11.05 and are 26% below the 52-week high of $22.72.
Among heavy volume this week, a gigantic spread traded in August options. The August 28/37.5 call spread traded 108,000 times for $0.60. Now that’s a huge trade!
The spread is maximized if the VIX closes at $37.50 or higher at August expiration. A trade this size could easily be a hedge against a very large portfolio, or it could be a huge speculative bet on volatility’s upside.
The spread cost nearly $6.5 million to put on. However, it could make over $90 million if volatility shoots higher in July or August. So what do you think? A speculative bet or a hedge?
More Options Ideas…
That wraps up this week’s unusual options trading and volume…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!
Yours in Profit,
Gordon Lewis
Category: Unusual Options Trading Activity
