Wednesday, August 4, 2010

Record Call Activity in VXX

The iPath S&P 500 VIX Short-Term Futures ETN (VXX) saw record call volume yesterday, with over 49,000 call contracts traded (compared to 93,000 VIX calls.)

VXX calls are active once again today with 25,000 contracts traded in the first two hours, compared to only 1,500 puts.

VXX call buyers have yet to demonstrate that they are the ‘smart money’ when it comes to predicting the future of volatility, but this fact is obviously is not dissuading at the moment.

Looking at the VIX futures, the second month futures are trading at 3.30 point higher than the front month, continuing the trend of 21 consecutive trading days with at least an 8% premium for the second month over the front month VIX futures. Call it the “contango rip tide” if you will.

I mentioned the surge of interest in VXX calls a little over a week ago in VXX Calls Attracting Interest and wondered aloud whether “there is a little desperation in the air that may be triggering some revenge trades in VXX.”

It is certainly not difficult to make the case for a rise in volatility from current levels, but with negative roll yield, time decay and other factors, that doesn’t necessarily mean VXX calls will be profitable trades if this turns out to be the case.
For more on related subjects, readers are encouraged to check out:

[source: Livevol Pro]

Disclosure(s): neutral position on VXX via options at time of writing; Livevol is an advertiser on VIX and More

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