VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday S&P futures had an interesting ride in the pre-market. Early on it appeared we were in full bull mode after positive industrial production numbers were released out of China. S&P futures continued to hover near the highs before the European markets opened putting pressure on futures yet again. The futures for the 3rd day in a row continued to trade in a fairly tight range moving just 6 handles top to bottom in the pre-market. The markets quickly shrugged off the weakness making yet another attempt to retake the 1420 level. This was again met with somewhat heavy selling resistance as investors continue to lock in gains for the year end. Both Hewlett Packard (NYSE:HPQ), and Dell (NASDAQ:DELL) were both trading higher after rumors surfaced Carl Icahn could have taken a stake in HPQ. Not all news was positive as some stocks were hit with selling pressure including Priceline (NASDAQ:PCLN), VF (NYSE:VFC), and Amazon (NASDAQ:AMZN). A check on the NYMO oscillator continues to work off the overbought / oversold conditions and closed yesterday with a reading of 22 which is nowhere near oversold or overbought.

The spot CBOE Volatility Index (VIX) popped higher at the open but then grinded lower throughout a very slow trading day. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) again held up quite well all things considered. The majority of this was due to buyers of the December calls on the 17, 18, 20, and 20 strike calls. This was more than likely someone who took off a short volatility play but it will be interesting to see if the trend continues as we move closer to the "Fiscal Cliff". Options activity as of the writing of this article was very light with just 534K of calls and 70K in puts both bought.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· December VIX futures 16.25

· January VIX futures 17.35

· February VIX futures 18.30


· December VIX futures 16.03

· January VIX futures 17.15

· February VIX futures 18.18

Options Paper:

Heading into the final 2 hours of trading the markets had traded a pathetic 8.5M contracts. Of the volume S&P ETF (NYSEARCA:SPY), Apple (NASDAQ:AAPL), ^SPX, ^VIX, and the NASDAQ ETF (NASDAQ:QQQ) accounted for 2.4M of these contracts. AAPL which had traded 551K contracts as of the writing of this article saw both bears and bulls battling it out to the death with a net 7.5M calls bought and 2.9M puts bought. I wrote an article dedicated to AAPL (here) where I outlined my thesis on why the downward pressure continues to hurt AAPL. I believe this pressure could possibly do nothing but continue increase as we get closer to the January 1 deadline. Regardless for those who follow me and my trades on twitter know I did get into the AAPL call for 14.00 as I outlined in my article above.

Phillips 66 (NYSE:PSX) has been a name very common to the sonar report and today is no different. Today a buyer stepped up in full force yet again buying the January 60 strike calls 25K times for .70 ask at the time. PSX has seen some very bullish plays of late and this 1.6M bet is believing PSX has another 10% upside left in the stock or more. I was lucky enough to get into PSX last Friday as just minutes before the close call buyers came in yet again in full force. I will look to sell front month upside calls against the position on further strength. Calls outnumbered puts more than 9.5 to 1 today on almost 4x average daily volume.

Another wildly bullish play was made today on a stock not so active on the sonar report Waste Management (NYSE:WM). Today a large block buyer of the July 35 strike calls were bought 10K times in one large block paying 1.20 ask or 1.2M in premium outright. This was quickly followed up with buying pressure in the July 34 strike calls as well driving premiums higher. Calls outnumbered puts almost 10 to 1 in today's trading session on more than 5x average daily volume. I have put in alerts to keep an eye on this moving forward as if IV drops I may enter into a trade buying some calls but need to keep an eye on open interest to ensure the trade doesn't get busted.

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Statistics and Screenshot Provided By LiveVol

Popular ETF's and equity names with bullish / bearish paper:

Bullish Option Flows - ISE & % OTM calls bought on offer

Medtronic (NYSE:MDT) 68% of 6.1K OTM calls bought

Adobe Systems (NASDAQ:ADBE) 7.6K


BP (NYSE:BP) 5.4K OTM calls bought

Glenworth (NYSE:GNW) 5.7K OTM calls bought

Broadcom (BRCM) 4.2K OTM calls bought

Bearish Option Flows - ISE & % OTM puts bought on offer

Linear Tech (NASDAQ:LLTC) 2.3K or 90% of OTM puts bought

Virgin Media (NASDAQ:VMED) 80%

Expeditors (NASDAQ:EXPD) 75%

Paychecks (NASDAQ:PAYX) 73%

LAM Research (NASDAQ:LRCX) 71%

Oil ETF (NYSEARCA:OIH) 70% of the 3.5K OTM puts bought

Monster Beverage (NASDAQ:MNST) 59% - We went long this name last week but I'm playing with house money

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long: AAPL, AGNC, AGQ, APC, KERX, MNST, MTGE, PG, PSX, VHC

I am short: DB, FSLR, FXE, LYV, SPY

Trades today: Bought AAPL Feb 600-700 call stupid, Trimmed MNST, Sold downside DB puts against January position, Bought VHC call butterfly

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment professional as to the suitability of such investments for his or her specific situation.