VIX - Options Volatility And Market Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday S&P futures were flat to slightly down heading into the open. Pre-market, the futures traded in a very tight 4 handle pattern 1527-1529 before lifting into early trading. Futures then hit a high of 1530 before some selling came in just before the Fed minutes. Of course, this turned out to be a great trade, as just moments after the Fed minutes came out, futures puked lower as heavy selling came in, taking futures down to a low of 1510, where it bounced ever so slightly. Losses came after the Fed minutes hinted it may stop or slow its bond-buying program before hiring picks up. Bonds interestingly caught a bid on this news, like bond ETF (NYSEARCA:TLT). This also caused the U.S. dollar ETF (NYSEARCA:USD) to rally slightly, putting additional pressure on equities and commodities. I wrote an article, published today, which talks about the effect of the USD on equities (here).

The spot CBOE Volatility Index (VIX) and futures were both hovering around unchanged until heavy SPX put bids again came rushing in. The spot VIX popped more than 2.00, up more than 17% on the day. Interestingly, the VIX futures also moved higher on a nice size percentage basis. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were moving higher, matching futures step for step. As noted and discussed in my daily reports several times, these equities still underperformed S&P ETF (NYSEARCA:SPY) puts and 2x S&P inverse ETF (NYSEARCA:SDS) calls on a percentage basis. I received messages on both SA and Twitter after some large call trades went off in the March 15 strike calls on the VIX. This single trade made up almost 10% of the total call volume for the VIX today, but it was actually sold. At 2:48, a block of 34.5K March 15 calls went off for .95 when the spread was trading 1.00 x 1.05, so clearly, a sold transaction. This is confirmed by net premium, showing calls were overall sold on the day to the tune of 3.6M. It appears one trader believes this volatility will be short lived.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· March VIX futures 13.98

· April VIX futures 15.08

· May VIX Futures 15.85


· March VIX futures 15.13

· April VIX futures 15.75

· May VIX Futures 16.40

Options Paper:

Option paper did pick up Wednesday, but was somewhat masked by dividend steals of United Parcel Services (NYSE:UPS), General Electric (NYSE:GE), Honeywell (NYSE:HON), and NorthStar Realty (NRF). All of these names were well above average call volume, but must be ignored for those looking for direction. S&P ETF, GE (GE), S&P Index ^SPX, Russell ETF (NYSEARCA:IWM), and UPS were the top 5 for options activity. Apple (NASDAQ:AAPL), Gold ETF (NYSEARCA:GLD), Bank of America (NYSE:BAC), and Silver ETF (NYSEARCA:SLV) were also active, but all had decently bearish paper on the day. Big put buyers finally stepped up in terms of the SPY, looking for protection. Large blocks went off above the ask on the day, totaling more than 24.5M in net put premium. This was met with some heavy blocks of call buyers also stepping in looking to "Buy the dip." Calls were bought to the tune of 10.7M, so it's not all bearish, but the implied volatility rising helped those, like me, who held the SPY puts to still have a very nice day.

Statistics and Screenshot Provided By LiveVol

Last Friday and yesterday, I continued to trim longs and raise cash. For those who follow me and my trades on Twitter, I closed my long on Mosaic (NYSE:MOS) after a huge engulfing bearish candle was printed today. One name that did pull my interest today was actually a big winner from last month -- Vodafone (NASDAQ:VOD). Today, a large bull stepped up, buying the July 25 strike calls in heavy blocks just minutes after 9:30. I joined into this buying, but of course, now wish I would have waited until the end of the day, as VOD did trade down 2.6% on the day. Overall calls were bought to the net of 1M in premium against just 294K in net put bought. Options activity in this name has remained bullish, and today someone laid down a significant bet, believing VOD will move higher into July expiration. Volume today was almost 3x average daily volume, with calls outnumbering puts 2.3 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

OCZ Tech (NASDAQ:OCZ) 69% - 2.2K OTM calls bought - Hard to find bullish paper today

Cemex (NYSE:CX) 68% - 12.5K OTM calls bought

General Motors (NYSE:GM) 31K OTM calls bought possibly part of a roll

Sequenom (NASDAQ:SQNM) 60% - 3.8K

Peabody (BTU) 56% - Bulls looking to roll farther out

Halcon (NYSE:HK) 2K ISE calls bought

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

AK Steel (NYSE:AKS) 91% - 5K OTM puts bought Symantec (NASDAQ:SYMC) 89% - 4.2K OTM puts bought following other bearish paper

Endeavour (NYSE:END) 85%

TIBCO Software (NASDAQ:TIBX) 84% - 5.7K OTM puts bought

Procter & Gamble (NYSE:PG) 46% - Almost 20K OTM puts bought possible short close

Forest Oil (NYSE:FST) 2.4K ISE puts bought

Aeropostale (NYSE:ARO) 1.2K ISE puts bought

Continental (NYSE:CLR) 1K ISE puts bought

Disclosure: I am long AGNC, BA, CBB, CONE, MOS, MTGE, NRG, PCLN (straddle), TUMI, VHC, VOD, and I am short ARUN, DDD, EDU, LULU, PCLN (strangle), SPY.

Trades Today: Closed MOS long (crying), bought ARUN put diagonal, bought VOD calls, sold some of my SPY hedge puts.

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.