Monday, August 15, 2011

Trade of the Day: VXX September $41/$29 bear risk reversals

The Trade
A trader executed 12,200 September $41/$29 bear risk reversals at a $0.20 debit, or $244,000.

The trader is making a large bearish bet that volatility has reached its peak. VXX closed at $32.18 today, dropping nearly 5.7%. The VXX increased 38.06% in the past month and 31.41% in the previous week. Today, the VIX fell about 12.5% to $31.8.

The spread carries unlimited risk to the upside. Therefore, the trader could have bought another call to define its risk.

The white line shown in the daily stock chart is the underlying break even level. The 52-week range is a low of $19.88 and a high of $96.40. VXX traded 146,259 option contracts today, slightly above average volume.

*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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