Unusual Options Activity In iPath S&P 500 VIX Short Term Futures ETN (VXX)

Trump loves twitting he’s
responsible for the rally’s in the equity markets, but blames Fed Powell when the
equity markets tank.  And while the equity
markets are up almost 50% since his election, due to the trade war and economic
uncertainty, the equity markets have gone nowhere in almost two years.

Although the equity markets
are near all-time highs, in the past almost 24 months, we witness almost a 20%
correction, several 10% declines, two declines of 6% in 2019 and just this week,
as an example, a 1200 point decline, followed by a 500+ rally in the DOW

 The CBOE Volatility Index, VIX aka the stock market fear gauge, is a popular measure of the stock market’s expectation of volatility implied.

Devesh Shah, an applied
mathematician and hedge fund manager who formerly worked for Goldman Sachs, was
one of the creators of the CBOE Volatility Index

The VIX is quoted in
percentage points and is the expected annualized change in the S&P 500
index over the following 30 days, with a 68% probability. VIX values greater
than 30 represent investor fear or uncertainty, while values below 20 represent
complacent in the Markets.

The iPath S&P 500 VIX Short Term Futures ETN (VXX) is the largest and most liquid in the volatility ETF/ETN universe. The ETN sees average volume of more than 15 million shares per day, typically, but spikes to more than 70 million when the S&P 500 sees a significant decline and traders pile into VXX pushing it higher.

Yesterday I noticed unusual options activity in VXX. The Smart Money bought over 22,000 of the VXX November 15 call options with a strike price of $37.

I honestly think this is a hedge, against an existing equity portfolio, but I’m just speculating. The one thing I’m not speculating on is the Smart Money thinks the equity markets are going to potential drop pretty hard over the next 45 days. In addition, October has been the historically the most volatile month in the equity markets.


However, in order for this trade to be profitable, the price must breach the weekly supply at $36 first. Will the Smart Money be right, stay tuned.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

About the author: rolland
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