Block Trade Analysis – VXX Bearish and Bullish Trades from Monday

Days like yesterday get me searching for volatility oriented option trades.  I found two that caught my eye in the VXX option market and debated which one to discuss in this space.  After about three seconds of internal debate I decided to just talk about both.

Both trades occurred in the middle of the day yesterday, one is bearish on VXX while the other benenfits if VXX spikes to the upper 20’s.  First the bearish trade.

When VXX was at 21.90 there was a seller of the VXX Jan 22nd 20.00 Calls at 2.62 who also purchased the VXX Jan 22nd 21.50 Calls for 1.94 taking in a credit of 0.68.  I’m aware I have written on bear call spreads in VXX many times, but I like the trade when VXX is spiking and think it is a good way for individuals to get involved in the volatility space.  The payoff diagram shows the outcome for this trade if held to expiration.


On the other side of the outlook for volatility we have a neutral to bullish trade.  When VXX was a little lower, 21.62, there was a buyer of 1 VXX Jan 29th 23 Call at 1.64 who sold twice as many VXX Jan 29th 28 Calls at 0.85 (or 1.70 per spread) which resulted in a credit of 0.06 per spread and a payoff on the last Friday of January that looks like the diagram below.


This is one that, if VXX moves to the upper 20’s I would expect the position holder to possibly unwind the spread or at minimum trade out of or roll the long 23 call leg of the spread.  No spike between now and January 29th means the spread expires and the realized profit would be the 0.06 credit taken in when the trade was initiated.  Also note, there is risk to the upside with any move over 33.06 resulting in losses if no adjustments are made.  If you think that’s unrealistic, please look back at a chart of VXX in late August to adjust your thinking a bit.