VIX - Options Volatility And Market Sonar: Thursday Recap

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 |  Includes: AAPL, AMTD, ARUN, BAC, CIEN, CTSH, EDAP, EEM, ETFC, FB, HIMX, INFN, JRCCQ, LVLT, P, PETM, SCTY, SLV, SPY, STI, SWY, SYK, TLM, TVIX, UVXY, VXX, WMT, XLF
by: Erick McKitterick

VIX - Market Sentiment:

Thursday S&P futures were bouncing between positive and negative heading into important economic numbers. Futures gained steam after reports the ECB will keep rates at record lows overnight. Futures did perk up after jobless claims unexpectedly declined to a six-week low, falling by 7,000. This news sent futures higher, back near the highs of the session but were still trading in a tight 5 handle pattern. Stocks moving higher in the pre-market were lead by Himax (NASDAQ:HIMX), CIENA (NYSE:CIEN), Infinera (NASDAQ:INFN), and EDAP TMS (NASDAQ:EDAP) all moving higher by more than 10% in the pre-market. Stocks leading on the downside were James River (JRCC), SolarCity (NASDAQ:SCTY) and PetSmart (NASDAQ:PETM), all falling by more than 7.5%. Be on the lookout tomorrow as the markets are getting Chinese CPI overnight and US Unemployment rate and Non-Farm Payrolls are all to be released prior to Friday's open so be tactical in your trades.

The spot CBOE Volatility Index (VIX) and futures continue to inversely move to the markets heading lower yet again. Heading again down towards the 13.00 level futures were also down across the board. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX) and alternative 2x ETF (NYSEARCA:UVXY) traded in lock step with the futures as full complacency continues to dominate the market. VIX pits were quiet today, trading less than 250K contracts w/ 30 min left in the trading day. As usual the typical VIX action continued today as calls were overall net sold and buts were overall net bought on the day. The short volatility play continues to work and is followed up with heavy put buying in the VXX with the April 17, 19, and 21 strikes all active on the day.

Click to enlarge

Statistics and Screenshot Provided By LiveVol

VIX futures are listed below.

Yesterday

· March VIX futures 14.65

· April VIX futures 15.55

· May VIX Futures 16.30

Today

· March VIX futures 14.30

· April VIX futures 15.31

· May VIX Futures 16.10

Options Paper:

Option paper went back to blah levels again trading just 15M contracts on the day. The top 5 names active in options today were S&P ETF (NYSEARCA:SPY), Bank of America (NYSE:BAC), Wal-Mart (NYSE:WMT), ^SPX, and Apple (NASDAQ:AAPL). WMT and BAC were both well over average with BAC more than 2x average daily volume and WMT trading more than 15x average daily volume. WMT must be ignored though as this is a dividend capture play done by market makers. Financial ETF (NYSEARCA:XLF), Facebook (NASDAQ:FB), and Emerging Markets ETF (NYSEARCA:EEM) were all trading greater than average volume and were all bullish inflows. A name which reports earnings after the bell tonight is Pandora (NYSE:P) and the paper of late continues to be heavy to the bull side. Today early on heavy call buying combined with overall put selling dominated the options market following some bullish flows from yesterday. Additionally some larger 7K call rolls also came in today as bulls looked to roll from March to June costing them an additional .90. Later in the day just after 1 pm some put buying also came in, driving net put buying back into the positive but bulls continued to control the option market. Options activity in this name was almost 7x average daily volume with calls outnumbering puts 1.7 to 1. I was asked by several of my readers on Twitter how I was playing this and the answer is I didn't. The volatility was too high and I couldn't get a read for a specific direction other than up. I wanted to play the 14 strike calendar spread to the upside but canceled the order half way into the noon hour.

Click to enlarge

Statistics and Screenshot Provided By LiveVol

One name getting some love today was the Silver ETF (NYSEARCA:SLV) which saw a patient bull step up to the plate today. Although under open interest currently sitting at 66.9K and it will need to be confirmed tomorrow more than 56K of the January 40 strike calls traded today in block. Large block buys of 11K plus going off more than 3 times with the top 10 transactions of the day were all large buys with the exception of 1. Net of the day more than 3.2M in call premium came pouring into SLV calls in a day where SLV was down almost 1% on the day is interesting. The January 40 strikes continue to be hot trading heavy since March began and today more than 111K calls traded hands with 71% bought on the offer. This intrigues me as SLV has not caught a bid in quite some time and this trade would imply another breakout for SLV in the next 9-10 months. Options activity was just over average but calls did outnumber puts almost 4 to 1 on the day.

Click to enlarge

Statistics and Screenshot Provided By LiveVol

Popular ETFs and equity names with bullish / bearish paper:

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

Talisman (NYSE:TLM) 80% - 11K OTM calls bought is good for my long in this name

Level 3 (NYSE:LVLT) 79% - 3.6K OTM calls bought

E*TRADE (NASDAQ:ETFC) 71% - 4.4K OTM calls bought trying to play catch up to TDAmeritrade (NASDAQ:AMTD)

Stryker (NYSE:SYK) 70% - 3K OTM calls bought

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

Aruba Networks (NASDAQ:ARUN) - 96% -5K July collar written against long shares

NXP Semiconductor - 95% - 2.1K OTM puts

Cognizant (NASDAQ:CTSH) 89% - 3.7K OTM puts

Safeway (NYSE:SWY) 88% - 2.2K OTM puts bought on offer

SunTrust (NYSE:STI) 86% - 2.6K OTM puts bought on offer

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long AGNC, BA, CBB, COF, CONE, ENDP, FL, IOC, JCP, MTGE, NRG, TLM, TUMI, and I am short ARUN, BIDU, DDD, EDU, LULU, SPY

Trades Today: Trimmed ARUN short, Bought BIDU puts, Bought FL call Diagonal, Bought COF calls, Sold BA calls against position (giddy up).

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.