VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday S&P futures traded higher up to 1471 before consolidating just below this level heading down throughout the day. Futures faded after a negative U.S. Trade Balance number was released showing the number missed forecasts by 7.6B. Fear mongering returned to all major news sources with CNBC claiming the market is going to hit a brick wall also continuing to put pressure on equities. Not all news was negative though as Bank of America reported 22.8B of inflows into equities week ending January 9th. A check on the NYMO shows yesterday closed at +48 as the market continues to attempt to move through heavy resistance near 1475.

The fear mongering I mentioned earlier is funny considering the spot CBOE Volatility Index (VIX) is pricing in not even a peep of volatility in January or February. With futures trading near the lows volatility continues to get sold off which bulls want to continue to see. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were flat as futures continued to maintain their current pricing structure. Early on some buying of the back month March contracts was met with selling bringing it right back down. The ^VIX trade of the day today was a big buyer of the March 25-35 call spread 67K times for .59. This 3.95M hedge is more than likely a large fund looking to protect gains in the event of a "Debt Ceiling" event which could send stocks lower. Because volatility is historically cheap here this makes a ton of sense for those holding long positions. Just like Life Insurance it is not something you want to have but if something happens you are sure glad you have protection.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· January VIX futures 14.35

· February VIX futures 16.23

· March VIX futures 18.03


· January VIX futures 14.33

· February VIX futures 16.18

· March VIX futures 17.73

Options Paper:

The market was mostly flat Friday continuing to consolidate near the 1470 level. As I have mentioned in multiple sonar reports (here) the market will more than likely break out above 1475 or break down at this point. Options activity today by S&P ETF (NYSEARCA:SPY), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Research in Motion (RIMM), and Bank of America (NYSE:BAC) lead the charge in terms of options volume. RIMM even went as far as seeing the weekly 12.00 call go from just pennies to more than 1.30 at one point today gaining more than 900%. Russell ETF (NYSEARCA:IWM) Emerging Markets ETF (NYSEARCA:EEM), Citigroup (NYSE:C), Silver ETF (NYSEARCA:SLV), Ford (NYSE:F), Gold ETF (NYSEARCA:GLD), and NASDAQ ETF (NASDAQ:QQQ) also saw decent options volume as bulls continue to try to push this market higher.

For those who follow me and my trades on twitter know I flagged some unusual bullish activity today in Cheniere Energy (NYSEMKT:LNG). Today a large bull stepped up buying the June 25-30 call spread 25K times for .48 cents. This is simply a 1.2M bet stating LNG could run to 30.00 before June expiration a 50% increase from current levels. This bet would give the trader an 11.3M gain between now and June if LNG traded above 30 on June expiration. Options volume was almost 4x average daily volume with calls outnumbering puts 34 to 1 as of the writing of this article. I would keep an eye on this name as with IV near a 52 week low an outright call may be a better option for those who are bullish the name. It is important to note this is more than likely a stock replacement strategy as a block of 375K shares were sold 2 minutes after the 25K trade went off but is bullish none the less.

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Statistics and Screenshot Provided By LiveVol

Other bullish paper came in the form today of News Corporation (NASDAQ:NWSA). Today at 1:48 a large bullish bet came in buying the January 2014 30-35 call spread 50K times for 1.15 offer. This 5.6M dollar bit would be a big winner if NWSA were to charge higher or more takeover bid rumors surfaced. Options in this name typically only trade 8.7K contracts and this trade blew away those numbers as option volume was more than 11x normal. As one would expect with a trade of this size calls outnumbered puts more than 200 to 1 on the day but remember 50K of those calls were sold. Keep an eye on this stock moving forward as this could get real interesting.

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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

Dun & Bradstreet (NYSE:DNB) 97% of calls bought on offer in a very illiquid name

Phillips 66 (NYSE:PSX) 73% of 4.8K OTM calls bought

Genco Shipping (NYSE:GNK) 6.3K OTM calls bought

ISIS Pharmaceuticals (ISIS) 69%

Monster Beverage (NASDAQ:MNST) 61% - Performance chase?

Talisman Energy (NYSE:TLM) 58%

Splunk (NASDAQ:SPLK) 54% of OTM calls bought

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

Compuware (NASDAQ:CPWR) 99% OTM puts bought on offer May 10's bought heavy

Jazz Pharmaceuticals (NASDAQ:JAZZ) 98%

Silver Wheaton (NYSE:SLW) 71% - Name I rode up continues to get bearish paper

Marvell Technology (NASDAQ:MRVL) 57%

TiVo Inc. (NASDAQ:TIVO) 57% of the 3.85K contracts bought

Celsion (NASDAQ:CLSN) 48% - volatility still at insanely high levels as stock awaits news

Speculative Play Friday:

For those who follow my speculative play Friday's back in November I mentioned a trade (here) which sure was a big winner. I recommended buying the January 25-27 1:2 call spread for .20 which can today be sold for 1.25. Even better if you were brave enough to hold this position till next Friday the 2x short 27 legs will make the trade an even bigger winner. Today I'm highlighting a name which has been the whipping stock all week on CNBC Boeing (NYSE:BA). This week it seems there wasn't a day which went by without someone reporting this or that was wrong with the BA flagship aircraft the 787 Dreamliner. Major institutional bullish traders have come in full force on this drop buying the May 77.50 calls now holding more than 30K in open interest. The bottom line is there is a gigantic backlog in terms of the 787 orders and BA will more than likely continue to reap the rewards moving forward once these "Issues" are put to bed for years to come. I personally like the BA 75-80-85 May call butterfly for .80 or better. This trade would expand to the potential 5.00 if BA was trading near the 80.00 level which is where the institutions are betting currently. This is a low risk high reward trade which I believe is a good way to bet on any type of recovery. I am going to try to leg into this by buying the 75-85 call stupid and will look to sell the 80 strike calls 2x times if BA rallies into earnings.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!




Trades today: Bought BA call stupid

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.