VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Welcome back. I hope everyone had a safe and happy extended trading weekend. Tuesday S&P futures traded in a 9 handle move top to bottom, waving back and forth heading into the open. Trading down to a high of 1484, then weakening back towards the 1475, it appears the market is building yet another floor, trying to hold above the 1480 level. Futures took the turn downward after Johnson and Johnson (NYSE:JNJ) reported a less than stellar quarter, missing analyst estimates. Additionally, weak numbers from existing home sales also put additional pressure on the market. Despite these weak initial numbers, the market continues to hold higher, awaiting this monster week of earnings releases. The NYMO continues to show relative strength in the market but again, has room to move higher, as the oscillator Friday closed at +42.12 a 5.66 point increase.

Both the spot CBOE Volatility Index (VIX) and futures moved higher in early trading today on the back of poor earnings news. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) popped higher before futures were again sold into oblivion. Last Friday, the Republicans announced a plan to keep the debt limit, but suspend it until May. The kick the can down the road approach continues to work for at least the VIX futures market, as they continue to be sold at every pop. Today, the VIX traded very heavy, with bulls and bears fighting tooth and nail to pretty much a draw in the VIX pits. By 2:00 pm, VIX had already traded 700K contracts in comparison to the typical 550K traded in any single day. Large block orders and spreads went off all day long with no specific tell one way or the other.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· February VIX futures 14.70

· March VIX futures 16.28

· April VIX futures 17.28


· February VIX futures 14.20

· March VIX futures 15.63

· April VIX futures 16.65

Options Paper:

The market was trading heavy option volume north of 16M, as is typical following any 3-day weekend. As usual, S&P ETF (NYSEARCA:SPY) led in terms of option contracts, but today, both the ^VIX and ^SPX had heavy option volume, totaling more than 1.4M contracts. Other names leading the way were Russell ETF (NYSEARCA:IWM), Apple (NASDAQ:AAPL), Research in Motion (RIMM), and NASDAQ ETF (NASDAQ:QQQ). It is important to note AAPL options were well under the average 800K heading towards the close. What was more interesting to me was the lack of options surge in Google (NASDAQ:GOOG), who reported after the bell tonight. Typically, GOOG trades more than 2.5x average daily volume but today, cleared just 2x heading into the close. The straddle in GOOG is predicting approximately a 44.00 move post-earnings release, according to the weekly and monthly options. The premiums in the options were very interesting today, with puts being sold to the tune of 10.2M worth. This is in direct contrast to the 3.8M worth of net calls which were bought. This is actually the most bullish I have seen GOOG in quite some time, but just as we saw with Intel (NASDAQ:INTC) last week (here), options are not always right. For those who follow me and my trades on Twitter, I am going to sit this one out.

Statistics and Screenshot Provided By LiveVol

3D systems (NYSE:DDD) is a trade I entered into a couple of weeks ago, and since has screamed to the upside. Interesting enough, as those same bears bought put spreads in this name to the tune of 700K just last week, they again added today, buying the May 60-50 put spread yet again more than 1.2K times for a net debit of more than 315K. This was very interesting to me, as this was right around the time DDD hit a new 52 week high, trading up above 71.00. This name has accumulated more than 2M worth of put premium as open interest has soared from 33K to more than 58K on the put open interest line. In comparison, calls have moved from 27.6K to 28K during the same time period. I remain bearish on this stock and followed the option activity yet again, adding to my put position today. Options volume today was more than 4x average daily volume, with puts and calls split almost 1 to 1.

Statistics and Screenshot Provided By LiveVol

Popular ETFs and equity names with bullish/bearish paper:

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

Total System (NYSE:TSS) 97% of the 3K OTM calls bought on the offer.

American Capital (NASDAQ:ACAS) 81% of the 2.6K

Fortinet (NASDAQ:FTNT) 77% or almost 6K OTM calls bought

Tesoro (NYSE:TSO) 75% - Calls have been hot in this name

Under Armour (NYSE:UA) 67%

Vringo (VRNG) 64%

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

Caribou Coffee (NASDAQ:CBOU) 100% - Feb 15 calls hot yet again

SM Energy (NYSE:SM) 98% - 2.2K OTM puts bought

Cemex (NYSE:CX) 91% of the 3.5K OTM calls bought

Western Union (NYSE:WU) 91%

International Game (NYSE:IGT) 77%

Disclosure: I am long AGNC, BA, CONE, INTC, KERX, KOS, MDR, MTGE, NRG, PG, PSX, SBUX, VHC, VOD, and I am short CRM, DDD, EDU, NFLX, SPY, VECO.

Trades today: Added to DDD puts, shorted VECO.

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.

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