VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday, S&P futures traded in a very tight 6 handle pattern heading into the open. The markets appeared to be taking a breather awaiting the FOMC economic projections release and press conference. Although import prices did put a slight negative tone to the market early on, this was quickly shrugged off after the Federal Reserve announced additional easing. The initial statement claimed easing will continue until unemployment is below 6.5%. Gold ETF (NYSEARCA:GLD) and Silver ETF (NYSEARCA:SLV) quickly reacted, moving higher on the news across the board before retracing some of the gains towards the close. A check on the NYMO oscillator shows a reading of 26, continuing to confirm the market is nowhere near oversold or overbought.

The spot CBOE Volatility Index (VIX) had a wild ride today, moving higher early before sharply dropping off. The drop-off did not last too long as SPX put buyers stepped in yet again, driving the spot VIX higher. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) also had a wild day, following futures all over the place. The big trades today were big VIX put and call sellers stepped up, taking more than 1.5M in call premium and 1.6M in put premium out of the market. The larges trades today were sellers of the May/April 16 strike put calendar spread. Another large play was the December 17 puts, which were bought, as well as the 18-21 call spread, 10K times each, possibly buying the 17 puts and closing down a short call spread. Open interest will confirm this tomorrow.

(click images to enlarge)

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· December VIX futures 15.55

· January VIX futures 16.55

· February VIX futures 17.63


· December VIX futures 16.08

· January VIX futures 17.05

· February VIX futures 18.03

Options Paper:

The market did have a little heavier volume today, but again was low, with just 16.1M contracts trading. This is because Merck (NYSE:MRK) saw more than 2.1M calls trade as part of the typical dividend steal, which is also the case with Dolby Labs (NYSE:DLB), and Eastman Chemical (NYSE:EMN). Following MRK, S&P ETF (NYSEARCA:SPY), ^SPX, ^VIX, Apple (NASDAQ:AAPL), and Bank of America (NYSE:BAC) again dominated the option pits, accounting for 6.36M contracts. For those who follow me and my trades on Twitter, I did enter into a long regarding SanDisk (SNDK) today, buying the January 43-48 call spread.

Interesting again, as today is a perfect example of why I follow options. Although not a huge number, it has been substantial over the last five trading days as puts were bought in Treasury ETF (NYSEARCA:TLT). Today was no different, as more than 611K puts were bought on the ask and 34K calls were sold on the bid net premium. TLT fell off a cliff after the announcement from the FOMC, and the bears are piling it on now. Largest trades were sellers of the December 126 calls and buyers of the December 124 puts, believing the weakness in bonds will continue through December expiration. I typically play a name like this leveraged by using 2x ETF (NYSEARCA:TBT) calls if I'm bearish the name, but just couldn't find any conviction on a trade. TLT traded 120% of average daily volume, with puts outnumbering calls just slightly 1.3:1.

Statistics and Screenshot Provided By LiveVol

As a follow-up from my article yesterday (here), I mentioned ETF (NYSEARCA:OIH) call buying lighting up my screen. Today, however, OIH did see weakness after starting the day higher. Some of the call buyers from yesterday did give up on the position, selling more than 108K worth of call premium as OIH weakened. This is not too big of an alarm for me, however, as option volume on OIH was only 66% of average daily volume, trading just 8.4K contracts. I am still looking to potentially buy weakness in this name, but the markets will dictate when I can enter this trade. Remember, OIH remains near a 52 week low on implied volatility, so spreads or ratios are probably not worth the risk here.

Popular ETFs and equity names with bullish/bearish paper:

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

NRG Energy (NYSE:NRG) 75%

Best Buy (NYSE:BBY) 52% - Call rolls for buyout speculation

BP (NYSE:BP) 47%

JDS Uniphase (JDSU) - Call rolls again dominate

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

Pitney Bowes (NYSE:PBI) 95% or 5K OTM puts bought - Bears just won't quit on this long hated name

Marathon Petrol (NYSE:MPC) 83%

Sprint Nextel (NYSE:S) 74% - Possible bulls hedging gains

Nexen (NXY) 58%

Celsion (NASDAQ:CLSN) 39% of the 8.6K puts bought as IV climbs to another 52 week high.

Disclosure: I am long AAPL, AGNC, AGQ, APC, KERX, KOS, MTGE, PG, PSX, SNDK, VHC, and I am short DB, FSLR, FXE, LYV, SPY.

Trades today: Trimmed AAPL, Bought SNDK call spread, Trimmed DB and FSLR shorts

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.