I wondered about that. The SQL service is running under a local admin account. The permissions for the directory looked normal.

The trace could create the file, and write some data to it under both circumstances (@options = 2 and @options = 6). But it was shutting down under @options = 6 when the trace file was 1MB on disk. I didn't have enough time to see if it would shut down when @options = 2 and the trace file reached 1MB, it grew at a much slower rate.