“The (NYSE:VXX) exchange-traded fund has fallen to yet another new low, but the big options trade of the morning appears to be calling a bottom. The Barclays iPath S&P 500 VIX Short-Term Futures Fund is down to $13.31, losing 3.2 percent on the session. It has set three new lows this week and 10 in the last 13 trading days. It was near $50 in November of 2009 and was above $35 in the May 2010 volatility spike,” Chris McKhann Reports From Option Monster.

McKhann goes on to say, “The (NYSE:VXX) options have continued to gain traction, and the volume in the fund itself remains quite good despite the abysmal performance. Its average options volume is 43,000 contracts a day, and already this morning the ETF has almost matched that. Leading the volume is the action in the December 10 puts. optionMONSTER’s systems show that 10,000 of those puts traded for $0.20 against open interest of just 216 contracts. While the options appear to have traded in the middle of the bid/ask spread — which isn’t uncommon in the (NYSE:VXX) — the price action indicates that these puts were sold.”

“Selling these puts is a bet that the (NYSE:VXX) will hold above $10 through expiration and/or that the seller is willing to buy it at that strike price. Those interested in such these trades should keep in mind that, while the VIX can’t go to zero, the (NYSE:VXX) can, though clearly Barclays would be forced to do a reverse split on the shares before that point,” McKhann Writes.

Take a look at our category on the ETF for more in-depth articles below:

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