VXZ - Multi-Leg Options Bet on Market Downturn in July

Discussion in 'Options' started by livevol_ophir, Jun 22, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    VXZ (VIX Mid-Term Futures ETN) is trading 84.06.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TCED8OOEsVI/AAAAAAAADIo/i6uLm4god5k/s1600/vxz_summary_6-22-2010.gif">

    The ETN has traded exactly 20,000 options on total daily average option volume of just 472. All the contracts went up in a six legged put spread in July (zero calls have traded). The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/vxz_22.html">in the article</a>).

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TCED96zuCzI/AAAAAAAADI4/GDpN2aUc_VQ/s1600/vxz_stats_6-22-2010.gif">

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/vxz_22.html">in the article</a>) illustrates which lines are trading. Note three of the lines are substantially opening (trade size >> OI). The 81, 85 and 89 puts are ambiguous (trade size = OI).

    The 81/85/89 butterfly traded on 6-8-2010 (a bet that vol drops). I wrote about it in detail. <a href="http://livevol.blogspot.com/2010/06/vxz.html"><b>VIX Mid-Term Futures (VXZ) - Butterly Bets on Vol Drop</b></a>. Click the title to read it.

    If we take the trades today together, I see this:
    Buy 2,500 July 75 puts for $0.55
    Buy 5000 July 77 puts for $1.00
    Buy 2,500 July 80 puts for $2.05
    Sell 2,500 July 81 puts @ $2.30
    Sell 5,000 July 85 puts @ $4.30
    Sell 2,500 July 89 puts @ $7.30

    The position is easier to see in a PnL chart (at expo). <a href="http://livevol.blogspot.com/2010/06/vxz_22.html">In the article</a>.

    Basically, it's a fancy shmancy call spread purchase (put spread sale). Max loss is $2,250,00 and max gain is $5,500,000. A bet on the VXZ going up, is a bet that the market goes down.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/vxz_22.html">in the article</a>) illustrates the vol by month by strike. You can see, it looks like a normal skew for this security.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/06/vxz_22.html">in the article</a>).

    We can see the dip, then the rise and the recent "mid point drop." It looks like there is just the beginnings of a turn upward. Could be a blip, or could not...

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. Is the open interest in the July 81 and 89 puts ~unchanged or reduced by ~2500 contracts? :confused: :eek:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    85 was sold, 81/89 bot in the butterfly. Today 81,85,89 were sold.

    So, OI:

    81: down
    85: up
    89: down
  4. I was interested in whether the parties in the butterfly trade from June 8th traded with each other today or one of them traded with someone else. :cool:
  5. livevol_ophir

    livevol_ophir ET Sponsor