VIX - Options Volatility And Market Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

So the first day of February, S&P futures were amazingly quiet overnight, moving just 4 handles top to bottom prior to the unemployment numbers. The much anticipated jobs number showed payrolls rose 157K following a revised 196K in the previous month. This report sent S&P and DOW futures to the highs as the DOW attempts to approach and take out the 14K mark. Other positive news came in the form of consumer sentiment, as reports showing a better than expected 73.8 versus and expected 71.5 also helped move the needle. On the earnings front, Merck (NYSE:MRK) earnings beat estimates, but issued a cautious outlook, putting pressure on the stock early. Regardless of the earnings, the market continues to build a base above 1500 and thus continues trying to make the climb to 1525-1535. The NYMO finished negative for the second day in a row with a reading of (8.50), a 2.71 point decrease after yesterday's trading session. If this market continues to perform, I would expect this to jump back positive after today's trading session.

The spot CBOE Volatility Index (VIX) and futures were crushed on the positive opening, as the uncertainty regarding the employment number had been removed. Bears were hoping this would be a negative number and possibly fuel a correction, which they could jump on. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) out of the gate were lower across the board as volatility sellers returned to the market. Yesterday, I pointed out (here) a very large 10M bearish bet, which went off in the VIX pits. Today's activity was mixed across all strikes for puts and calls, and puts were slightly bought on the day overall, and calls were sold overall. The activity did pick up just after 2:00, as some volatility buyers did step in, but nothing in comparison to the action yesterday, as futures were just outright crushed today.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· February VIX futures 14.98

· March VIX futures 15.80

· April VIX futures 16.70


· February VIX futures 14.13

· March VIX futures 15.15

· April VIX futures 16. 18

Options Paper:

The options paper was across the board bullish, trading almost 18M contracts on the day. S&P ETF (NYSEARCA:SPY) saw 3.2M contracts heading into the final 30 minutes of trade, going way past the average of 2.3M. Apple (NASDAQ:AAPL) also continued heavy option volume, but again, saw put buyers dominating the tape. Facebook (NASDAQ:FB), Bank of America (NYSE:BAC), and Dell (NASDAQ:DELL) rounded out the top five. DELL call options have been very hot, driving implied volatility higher after a report came out saying a buyout offer could come as early as Monday. The market overall just does not want to go down, and the weakening U.S. dollar represented by the USD ETF (NYSEARCA:UUP) continues to drive commodities and equities higher. Bonds continue to get sold as some rotation continues out of Treasury ETF (NYSEARCA:TLT) and apparently, into equities. All of this as AAPL continues to shed market cap and the DOW tries to close above 14K for the first time in years.

Statistics and Screenshot Provided By LiveVol

Yesterday, Constellation Brands (NYSE:STZ) stock was crushed after reports of a lawsuit challenging the Anheuser-Busch (NYSE:BUD) proposed $20B bid for Modelo. The options market ran with this fear, driving implied volatility through the roof before finally selling back down after STZ dropped more than 20%. Today the bulls were back in force, and numbers defending STZ buying more than 5.1M in call premium today. Specifically, they were buying the April and July 32.50 strike calls in large blocks all day long. The majority of these were rolls as positions were surrendered on the July 40s, closing them to buy the 32.5s in greater quantity. This is exactly the opposite in comparison to yesterday, where calls were just outright sold to buy puts. Today, the puts were sold to the net of 500K+, and the calls were bought to the tune of 5.1M in total net premium. Options activity was more than 10x average daily volume, with calls outnumbering puts 2.4 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

EXCO Resources (NYSE:XCO) 95% or 2.2K OTM calls bought

Beam Inc (NYSE:BEAM) 78%

ServiceNow (NYSE:NOW) 72% of the 5.2K OTM calls bought

PPG Industries (NYSE:PPG) 70% - Heavy call buying was closing down of a straddle

Teva Pharma (NYSE:TEVA) 67% - As 4.8K OTM calls bought on offer

Lowes (NYSE:LOW) 60% - Calls continue to be bought in this name

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

American Axle (NYSE:AXL) 96% - 3.7K puts bought on offer of July 9 strike puts earnings next week

Navistar International (NYSE:NAV) 87% of the 8.2K OTM puts bought

SLM Corp (NYSE:SLM) 85%

Micron Technology (NASDAQ:MU) 75% - Chips have been red hot -- be careful here

D.R. Horton (NYSE:DHI) 68% - Home builders went nothing but up -- interesting play

Johnson & Johnson (NYSE:JNJ) 68% of 7K puts bought on the offer

New Oriental (NYSE:EDU) 66% - Name I've been short following put activity gets another dose of puts bought

Disclosure: I am long AGNC, BA, CBB, CONE, F, INTC, KERX, KOS, MTGE, NRG, PG, TUMI, VHC, VOD, and I am short DDD, EDU, SPY.

Trades Today: Exited AIG 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.