What's This VXX Trade Telling Us?

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• Hi, My name is Steve and Im with Options Trading
  Research, today were reviewing our recently
  published article

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• What's This VXX Trade Telling Us?

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• There are good reasons why trading iPath SP 500
  VIX Short-Term Futures ETN VXX is extremely
  popular. With an average volume of nearly 50
  million shares a day, both retail and
  institutional traders must be active in this ETN.

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• As a quick refresher, VXX is a way to get long
  the first two months of VIX futures. You can
  read more about it here. In a nutshell, the most
  popular volatility index is the VIX, or fear
  gauge.

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• However, the VIX isnt tradable on its own. As
  such, the VXX is the next, best thing.
• For even more information on the VXX, check out
  the official product page here.
•  

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• Volatility has finally settled down the last
  month after trading at elevated levels for a
  time. As such, VXX is back down to near 52-week
  lows.

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•  At 25.06, VXX is down about 20 on the year.
  Thats just 2 above the 52-week low and 46 from
  the 52-week high.

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•  So what's the deal with this VXX trade?

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• Heres the deal
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• A trader sold over 6,000 May 30 calls in VXX for
  around 0.80 per option. That works out to a
  little under 500,000 the trader collected in
  premium.

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• That's also the max gain on the trade. If VXX
  closes below 30 on May expiration, the trader
  gets to keep all the premium.

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• Otherwise, the breakeven point is 30.80. The
  loss is unlimited if VXX shoots higher, so
  there's certainly some risk.

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• However, the VXX rarely remains elevated above
  30 for any length of time. Check out the chart

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• As you can see, VXX doesn't tend to stay elevated
  above 30 after upward spikes. After trading at
  higher than usual levels early in the year, it's
  now dropped to nearly 52-week lows.

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• So, should you make a VXX trade like this?

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• VXX closing below 30 on May expiration has very
  high likelihood of occurring. Extreme contango
  in the VIX futures is also helping to ensure the
  VXX is going to continue its descent.

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• However, I don't recommend selling naked calls
  unless you're a very advanced trader. It's a
  very risky proposition due to the unlimited loss
  potential. More conservative traders can instead
  consider buying VXX puts.

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