VIX - Options Volatility And Market Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday S&P futures continued to lift slightly higher heading into the open, trading just under 5 handles top to bottom, opening at 1513.10 and trading as high as 1516.80 before some selling again came into the market. Both Nike (NKE) and AOL (AOL) showed gains in the pre-market after analysts upgrades sent the stocks higher yet again. AOL of course rocketed higher just last week after beating estimates and raising guidance so these upgrades could very well continue in the short term as analysts continue to try to catch up. Additionally news home prices continue to rise throughout the US helped to hold prices higher as the market continues to build a new base above 1510. The NYMO closed the week on Friday with a reading of 3.29, a 13.78 point increase from Thursday. I pointed out on Friday's sonar report. I expected the NYMO to move closer back to neutral and would look for this trend to continue as the market attempts to take the next leg higher.

Spot CBOE Volatility Index (VIX) and futures actually diverged today in early trading as spot VIX went higher and futures were mostly sold across all months. Although spot VIX did eventually go back into the red with futures it is interesting to note the divergence. Volatility ETF (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY) again were in negative territory showing little signs of strength. Large VXX put spread buyers stepped in last week buying the longer dated 15-13 put spread, some 1.5M worth of premium. Today this theme continued as heavy March 23 VXX call sellers came in and used the proceeds to buy the March 23 puts some 4K+ times each. This activity matches the VIX futures as February and March continues to be sold driving futures again near all time lows.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· February VIX futures 13.83

· March VIX futures 15.15

· April VIX futures 16.15


· February VIX futures 13.45 (New lows)

· March VIX futures 14.85 (Again new lows)

· April VIX futures 15.80 (Again new lows)

Options Paper:

Options paper was almost nonexistent, trading just over 12M contracts on the trading day. S&P ETF (SPY), Russell ETF (IWM), and Apple (AAPL) were the top 3 in terms of option paper with only IWM above average. Other typical hot names such as Bank of America (BAC), Gold ETF (GLD), and NASDAQ ETF (QQQ) were all well under average in terms of option contracts. For those who follow me and my trades on Twitter I did enter a long in Michael Kors (KORS) after bullish paper continued to flow into this name. KORS was down in sympathy with Coach (COH) but this just had the bulls bucking the trend again using weakness to load up on this name going into earnings. Just after 10:30 one large bull stepped up buying the February 57.5-62.5 call spread 4K times for 2.00. This bullish bet is to continue following other bullish paper which has flowed heavily into this name. Although it must be noted towards the end of the day February 52.5 strike puts were bought heavily with net put premium outpacing call premium by more than 800K. This is small however as more than 2.2M in call premium has been taken home over the last 2 weeks and puts had been overall sold until today. Option activity was almost 9x average daily volume with calls outnumbering puts almost 2 to 1.

Statistics and Screenshot Provided By LiveVol

Last Friday (here) I reported some bearish paper flowing into Buffalo Wild Wings (BWLD). Interestingly enough today the name traded heavy call and put volume but there was no tell in terms of option activity. I did however enter a trade which is effectively short volatility as it does continue to rise another 9.7% today alone. I am not sure whether BWLD is about to breakout or breakdown and therefore I bought the March 65-90 straddle but then reduced my cost to 0.00 by selling 2x of the February 65-90 strangles 2x times. My initial thought is BWLD will trade lower on weak guidance but this allows me to play to the up or downside by 15% which is outside the straddle pricing a 10% move. I am only doing this structure because I am willing to get short BWLD above 90 and long below 65 so please keep this in mind. BWLD traded more than 5x average daily volume with puts outnumbering calls 1.6 to 1. I would expect volume in this name to really pick up as they report tomorrow after the bell.

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

Warner Chilcott (WCRX) 89% - 3.3K OTM calls bought

Healthcare Trust (HTA) 77% - Healthcare theme continues

Central European Distribution (CEDC) 66% - 5.8K OTM calls bought

Vale S.A. (VALE) 60% of the 10K OTM calls bought as March 21 and 22 strike calls bought

United Rentals (URI) 52% - June 57.5 Calls bought on 2x average daily volume for calls

Aeropostale (ARO) 1K ISE calls bought

MBIA (MBI) 1K ISE calls bought after huge run up

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

Ingersoll-Rand (IR) 92% - June 40 strike puts bought

MGIC Investment (MTG) 94% - March 2 strike puts bought in volume

Arena Pharmaceuticals (ARNA) 79% of OTM puts bought on offer

Applied Materials (AMAT) 58% of the 10K OTM puts bought on offer

NVIDIA (NVDA) 52% - March 11 puts bought possible closing short check OI

Mini NASDAQ 100 Index ^MNX 13K ISE puts traded

VistaPrint (VPRT) 1K ISE 32.5-30 put spread bought for .56

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!


Disclosure: I am long AGNC, AVGO, BA, CBB, CONE, F, INTC, KERX, KORS, KOS, MOS, MTGE, NRG, PCLN (straddle), PG, TUMI, VHC, VOD, and I am short (BWLD volatility), CMG, DDD, EDU, PCLN (Strangle), SPY

Trades Today: Bought BWLD March 65-90 strangle, Short BWLD Feb 65-90 strangle 2x, Bought KORS Risk Reversal / call calendar, Bought MOS Calls, Long AVGO call calendar, Sold WAG calls, Added to DDD 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.