There recently has been an unusual amount of options activity in iPath S&P 500 VIX Short-term Futures ETN (VXX). VXX is a popular product for trading short-term market volatility. The ETN tracks the first two futures of the Cboe Volatility Index (VIX), which measures volatility on the S&P 500.
With bullish news from the Federal Reserve and a potential China trade deal agreed upon, volatility has been way down this past week. The expected decrease in volatility can be seen in the options activity in VXX, where there was a very large purchase of Dec. 27 puts.
However, there was also a large purchase of February calls, which make money if volatility spikes in the next couple months. This could be a hedge against a stock portfolio or a speculative bet that volatility is going to increase early next year.
Jay Soloff is the Options Portfolio Manager at Investors Alley. He is the editor for Options Profit Engine, an investment advisory bringing you professional options trading strategies, with all the bells and whistles of Wall Street, but simplified so all you have to do is enter the trades with your broker.
