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Bullish Options Bets On VXX Signal A Potential Volatility Turning Point

Analyst Paul Weisbruch of Street One Financial brings us his daily fund flows update, which today points out some very bullish options bets being made on a popular volatility ETP, along with big money flowing back out of large caps and into small cap funds.

We saw interesting well out-of-the-money call activity in VXX (iPath S&P 500 VIX Short-Term Futures ETN) involving the May 38 strikes. VXX was trading with a $17 handle earlier today on a decent lift on global equity weakness, but has not traded anywhere near $38 since prior to Trump’s election last November.

The strike chosen in this trade may not be a coincidence, but one has to be mindful of the contango that is typically present in the VIX futures market, which negatively impacts returns on the VXX. VXX has attracted a notable more $345 million year-to-date in terms of net creations, and trading volume in the product in the past several sessions has been well above normal, even approaching the 100 million share mark.

Elsewhere, as we have mentioned, Small-Caps continue to catch a bid into the end of first quarter trading, with IWM (Russell 2000) pulling in over $2.6 billion in recent sessions, while large-caps — at least in the sense of SPY, with $3.8 billion out — have seen redemptions here. DIA (DJIA)  has seen $700 million leave recently, while Mid-Caps via MDY (SPDR S&P Midcap 400) and IJH (iShares Core S&P Mid-Cap) have also seen outflows of $700 million and $400 million out respectively.

The iPath S&P 500 VIX Short Term Futures TM ETN (NYSE:VXX) was trading at $16.58 per share on Monday afternoon, down $0.19 (-1.13%). Year-to-date, VXX has declined -35.01%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.

VXX currently has an ETF Daily News SMART Grade of F (Strong Sell), and is ranked #5 of 11 ETFs in the Volatility ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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