VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday S&P futures traded in an extremely tight 5 handle pattern. Futures opened near the highs at 1489.90 and moved as high as 1490.90 down to a low of 1485.20. Positive news out of both Google (NASDAQ:GOOG) and IBM (NYSE:IBM) sent futures moving higher initially before halting after some negative economic news. Specifically the IMF cut global growth forecast for the second time in 4 months down to 3.5% from 3.6%. With earnings in full swing sometimes economic news is put in the background on traders' minds. Tomorrow the German Flash Manufacturing PMI and US Unemployment are both out before the bell. Make sure to keep these points on your radar as they could be big market movers. The S&P ETF (NYSEARCA:SPY) saw a massive 300K call purchase on the weekly 150 strike calls last week and it appears to be a magnet drawing higher heading into this week's weekly options expiration. The NYMO continues to move higher but is still not in overbought territory with a reading of just +50.96 an 8.84 point increase.

The spot CBOE Volatility Index (VIX) and futures moved slightly higher in early trading awaiting the next wave of tech earnings. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were mostly flat to slightly positive following the futures throughout the day. As reported on the sonar yesterday (here) the VIX traded near record levels of options activity far exceeding the average 546K contracts. The bad news of course was there were no out of the norm call or put purchases to show a specific direction to where the VIX could be headed next. Wednesday the early theme was April 14 strike put sellers combined with April 20 strike call buyers. The VIX had traded 175K contracts in the first hour of trading with calls bought on the ask 41% of the time. These calls are more than likely a short covering as profits from volatility shorts are at or near all time highs for those who have shorts on the VIX options skew. This action accelerated when the house voted to kick the debt ceiling debate to May 19th.

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Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· February VIX futures 14.20

· March VIX futures 15.63

· April VIX futures 16.65


· February VIX futures 13.83

· March VIX futures 15.03

· April VIX futures 16.05

Options Paper:

The market with just 2 hours to trade had barely cleared 11M contracts. SPY continued to lead the way trading over 1.5M contracts Wednesday. Active names today were Apple (NASDAQ:AAPL), Nokia (NYSE:NOK), Cirrus Logic (NASDAQ:CRUS), and Microsoft (NASDAQ:MSFT) all reporting earnings in the next 2 days. Of course today CNBC was highlighting the big tech giant earnings tonight AAPL. AAPL has been in a clear downtrend since the 700.00 highs put in back in September of 2012. For those who follow me and my trades on Twitter I mentioned AAPL calls were outpacing puts but no clear tell as to the direction. I did a non directional trade on AAPL buying 1:2 call and put ratio spreads just out of the straddle pricing for a slight credit. AAPL straddle is pricing in a 35.00 move post earnings so I bought the 540 - 480 strangle and sold 2x of the 560 - 460 strangles against it for a credit. I also took the opportunity to buy Technology ETF (NYSEARCA:XLK) calls with the proceeds which would stand to gain nicely if AAPL reports a good number.

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Statistics and Screenshot Provided By LiveVol

O'Reilly Automotive (NASDAQ:ORLY) today saw a very large bull take profits and now convert to a protective collar in May. This bull then appeared to take his position and flip it then selling 10K of the May 90 calls as well as 17K+ of the May 100 calls. The trader then used the proceeds to buy the May 80 puts some 17.5K times driving premiums from 1.30 to 1.55. In total more than 4M worth of ORLY puts were bought as it appears someone is positioning or hedging for a pullback. This makes a ton of sense as volatility in this name continues to drop and is nowhere near the 52 week high so buying protection here is just smart. It is important to note implied volatility of front month strikes just collapsed after these positions appeared to be closed. We will need to look at open interest tomorrow to confirm these were closing positions but the IV drop tells me this is already the case. Options activity was more than 25x average daily volume with calls outnumbering puts almost 2 to 1.

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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

Office Depot (NYSE:ODP) 87% - Puts also bought as part of strangle

Centerpoint (NYSE:CNP) 84% - 3K OTM calls bought on offer

Talisman Energy (NYSE:TLM) 68% - Interesting on a down day

Corning (NYSE:GLW) 56% of the 5.3K OTM calls bought on offer

Marvell (NASDAQ:MRVL) 55% - Bullish call rolls

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

Xerox (NYSE:XRX) 89% of 10.6K OTM puts bought on offer

Pitney Bowes (NYSE:PBI) 87% or 6.4K OTM puts bought

Office Depot 83% - See note above as 4 strike puts bought

Walgreens (WAG) 78% - 4K OTM puts bought

Exelon (NYSE:EXC) 14K of the February 30 puts bought on offer

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, VECO

Trades today: Sold NFLX weekly puts against existing position, Sold AGNC calls, Sold KERX calls, Bought XLK calls, Bought AAPL 540-480 strangle, sold 2x AAPL 560 - 460 strangle, Added to BA position (Full position), Sold AAPL bull put spread.

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.

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