VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday S&P futures were nothing short of a snoozer in early trading moving less than 5 handles top to bottom. Markets were weighed down in early trading held down by Intel (NASDAQ:INTC) earnings and poor Consumer Sentiment numbers. The University of Michigan Consumer Sentiment number was forecast to have a reading of 75.1 and instead came up very short with a reading of 71.3. Additionally the previous UoM CS number was revised down to 82.7 from the initial reading of 84.9. Yesterday the market showed remarkable strength but did fail to close above resistance of the 1485 level. A final look into the NYMO continues to show the market has burned off the recent pop as the oscillator Thursday closed at +36.46 a 19.38 point increase from the day before. The market has a huge lineup of earnings next week so this could be a make or break situation where we either break out or break down.

The big issue with a break down theory is spot CBOE Volatility Index (VIX)) and futures are pricing almost no volatility as spot broke below 13.00 for the first time since July 2007. The Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) continue to just be slapped to new lows as VIX futures continue to be sold across the board. Anyone watching any financial news cast whether CNBC or Bloomberg was pummeled with VIX "Collapsing" talk. This is not news in my mind as the markets are doing nothing but pricing in the 3 day weekend. SPX put bids disappeared today reflected perfectly in the spot VIX. Today 5M worth of VIX call volume was purchased with the majority of it coming in what appeared to be short covering as February futures continue to fall sharply.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· February VIX futures 15.40

· March VIX futures 16.95

· April VIX futures 17.85


· February VIX futures 14.70

· March VIX futures 16.28

· April VIX futures 17.28

Options Paper:

The market again saw some decent volume Friday trading more than 19M contracts with just over 30 minutes left before market close. Today was again somewhat masked with dividend plays but as usual S&P ETF (NYSEARCA:SPY) lead the charge with more than 2M contracts. The weekly SPY calls next week were very hot as premiums again rose for the second day in a row. Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), Russell ETF (NYSEARCA:IWM), and Emerging Markets (NYSEARCA:EEM) rounded out the top 5. In a very close 6th place INTC option activity continued to be extremely heavy post earnings. Although this is pretty typical I mentioned on Twitter and on the sonar yesterday (here) I followed a large bullish bet into INTC yesterday. Buying the buying the back month February 23-24 call stupid saved my trade as selling the weekly 23.50 calls 2x turned out to be the right move. Instead of losing .65-.75 the .25 trade is only down .10. Therefore my trade is simple keep rolling the short 2x calls out a week at a time until I recoup the rest of the trade. Many companies have reported just awful quarters such as Tiffany (NYSE:TIF) and Chipotle (NYSE:CMG) and recovered nicely. Although I understand INTC is not in the same space as these names I will continue to adjust this trade moving forward to reduce losses. Although option activity was not favorable in today's trading session as both calls and puts were sold across the board driving implied volatility back down near 52 week lows.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

Bulls went piling into a name that has been on the sonar report in weeks past McDermott International (NYSE:MDR). Today just after 1:20 block orders of 100 contracts or more came pouring in driving the February 12 strike calls from a premium of just .45 at the time to more than .65 in the trading session. Implied volatility shot higher as the name climbed from 11.80 to a high of 12.29 less than 1 hour later. The option activity is most interesting because although not huge in terms of a dollar amount the volume is suspect. More than 250K in net premium in calls was purchased today but more interesting was the 8.7K+ calls which traded more than 78% on the offer side. Option activity was more than 10x average daily volume with calls outnumbering puts more than 22 to 1.

(Click to enlarge)

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

CROCS Inc. (NASDAQ:CROX) 80% - Someone likes open toed shoes

Southwestern (NYSE:SWN) 76% - Energy theme continues to play out

Dunkin Brands (NASDAQ:DNKN) 68% of the 13.1K OTM calls bought on offer

International Gaming (NYSE:IGT) 65%

General Dynamics (NYSE:GD) 60% of the 33K calls bought on offer

Staples (NASDAQ:SPLS) 42 % - Call rolls looking for time but I can't get behind retailers here

Office Depot (NYSE:ODP) 37% - See note on SPLS

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

Huntsman (NYSE:HUN) 93% or 20K OTM puts bought on the May 12 line

Arch Coal (ACI) 88% red flag as these were bought on big up day 23K times

MetroPCS (PCS) 72% - 10K worth

Procter & Gamble (NYSE:PG) 50% as 10K OTM puts bought. (Not good for my long)

Celsion (NASDAQ:CLSN) 42% - Flagged Wednesday (here) this name continues to see a large put premiums being bought ahead of the results.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!



I am short: CRM, DDD, EDU, NFLX, SPY

Trades today: APC calls expired, FXE puts expired, closed BWLD short, Bought CONE IPO common, Bought MDR calls, Rolled PSX diagonal, Rolled BA short calls, Added to SPY puts, Bought EDU synthetic short

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.

Disclosure: 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.