VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday, S&P futures were nothing short of a snooze fest heading into the open. Futures moved a whopping 5.5 handles top to bottom awaiting the ADP payroll number. Hiring and unemployment stayed pretty steady after adding 155K jobs, with the unemployment rate ticking up to 7.8%. This is somewhat skewed, in my opinion, as the Labor Department discounts anyone who has given up looking for a job. The Federal Reserve really put a negative tone on the overall market, with stocks, bonds, and commodities all selling off yesterday. The NYMO yesterday closed at +37 as the market continues to digest the recent upswing, which is much stronger than I expected.

Today, the spot CBOE Volatility Index (VIX) continued to fall again, this time touching the 13s, again showing a complete lack of fear in the market. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) continue to be weak as negative roll continues to hamper longs and reward volatility shorts. In my opinion, now is not the time to be short volatility, as the headlines can quickly change and move the market violently. The large VXX put spreads noted in the sonar report (here) are up nearly 20% in 2 days.

(click images to enlarge)

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· January VIX futures 15.65

· February VIX futures 16.88

· March VIX futures 18.05


· January VIX futures 15.10

· February VIX futures 16.60

· March VIX futures 17.83

Options Paper:

The market recovered from yesterday's slight slide .5%, with financials leading to the upside. The leaders in option volume were S&P ETF (NYSEARCA:SPY), Apple (NASDAQ:AAPL), ^VIX, ^SPX, and Bank of America (NYSE:BAC), keeping with typical trend. Other notable names today included Russell ETF (NYSEARCA:IWM), Ford (NYSE:F), Gold ETF (NYSEARCA:GLD), NASDAQ (NASDAQ:QQQ), and Facebook (NASDAQ:FB), all with above average volume. The market traded just over 15M contracts today -- a far cry from the 19+ seen on Wednesday.

As mentioned on the sonar report yesterday (here), DryShips (NASDAQ:DRYS) saw some heavy OTM call buying yesterday. Sure enough, those long this name got paid today after a large 25% higher move in today's trading session. The buyer of those January 2 strike calls saw them go from .01 and .02 to more than .22 after today's massive run up. Not a bad little profit, if I do say so myself. For those who follow me and my trades on Twitter, I did NOT take a position in DRYS following this activity yesterday, but I really wish I would have now. Option activity today again was crazy bullish, with 54% of the 24K calls bought on the ask, and more than 51% of the 7K puts sold on the bid. DRYS calls outnumbered puts more than 3 to 1, and was very heavy, 10x average daily volume.

Statistics and Screenshot Provided By LiveVol

Bearish paper did show up in a name I'd never even heard of until it crossed my screen today. EnteroMedics (NASDAQ:ETRM) saw one buyer of 2.5K of the February 2.5 strike puts. These were bought in large quantities for a name like this, as it typically only trades 107 contracts a day. The open interest of puts for all strikes and months is only 321, and I would expect this to increase north of 2.8K come Monday. Option volume was more than 260x average daily volume, with puts outnumbering calls 16.6 to 1. I'm not currently in this trade, but if volatility comes in a little on this name, I may join in.

Popular ETFs and equity names with bullish/bearish paper:

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

Lear Corporation (NYSE:LEA) 95%

Xerox (NYSE:XRX) 83% of 4.7K calls bought on offer

Leap Wireless (LEAP) 80%

Plains Exploration (NYSE:PXP) 77%


MBIA (NYSE:MBI) 63% of 38K calls

Western Digital (NYSE:WDC) 2.6K calls bought

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

Masco (NYSE:MAS) 93%

Clearwire (CLWR) 86%

Technology ETF (NYSEARCA:XLK) 84%

Pitney Bowes (NYSE:PBI) 82% - Long hated name on the sonar, looking to re-short

Gilead (NASDAQ:GILD) 74% of OTM puts bought on offer

Procter & Gamble (NYSE:PG) 2.3K puts bought, but appears to be a roll (Not good for my long)

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

Trades today: Scalped AAPL shorts, trimmed FSLR and BWLD short, added to PSX long.

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.