VIX - Options Volatility And Market Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday S&P futures were flat to slightly up heading into the open. Continuing the strength of last week the market again advanced almost 0.3% across the board. Reports out of the labor department had some investors spooked as the job growth in America was paying under $10.00 an hour. In other news American economist Nouriel Roubini warned if the ECB does not cut rates soon it will be "Too little, too late." Stocks moving in today's session were Genworth Financial (NYSE:GNW), Ford (NYSE:F), Electronic Arts (NASDAQ:EA), and Iron Mountain (NYSE:IRM) all gaining on good volume across the board. Losers of the day Akamai Technologies (NASDAQ:AKAM), Valero (NYSE:VLO), Cliffs Natural (NYSE:CLF) and MetroPCS (PCS) all losing more than 3% on the day. Tomorrow we have the Federal Budget Balance numbers which are not expected to be market moving as shown with current volatility readings.

The spot CBOE Volatility Index (VIX) and futures were decimated today as front month protection was sold and rolled hard to further out months. The spot VIX has collapsed from a reading of 19 now currently below 12.00 showing the price of protection is near 52 week lows. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were all crushed on the day along with futures as the market continued the charge higher. VIX contracts traded 724K contracts against a typical 567K contracts with calls outnumbering puts 1.3 to 1. March VIX futures settle in 9 short days and puts are being bought in full force as realized volatility continues come in day after day.

Statistics and Screenshot Provided By LiveVol

VIX futures are listed below.


· March VIX futures 13.80

· April VIX futures 15.10

· May VIX Futures 16.05


· March VIX futures 13.08

· April VIX futures 14.55

· May VIX Futures 15.70

Options Paper:

Option paper was very light again today when you exclude the dividend capture plays of Home Depot (NYSE:HD), Developers Diversified (NYSE:DDR), and NYSE Euronext (NYSE:NYX). All of these stocks traded massive numbers in terms of calls as market makers continue to try to capture dividends. The top 5 names trading in Monday's session were S&P ETF (NYSEARCA:SPY), Emerging Markets ETF (NYSEARCA:EEM), ^ SPX, ^VIX, and Apple (NASDAQ:AAPL). Apple of course ripped higher the last hour and a half of the day as rumors of a dividend increase or capital allocation sent the stock ripping higher on heavy volume. This was interesting as front month volatility screamed to the upside as well as call buyers came rushing in to chase performance. At the start of the buying call net premium was sitting near (4.2M) and put premium was sitting at 2.1. In less than 10 minutes call premium went from red to black at 6.2M and puts now trading in the red by (3.6M). This move showed almost 10M in calls were bought and 5.7M in puts were net sold in a very fast 10 minute window. AAPL still was under average daily volume in terms of options but the sentiment just like the market turned on a dime as option players went back to full bull mode. Interesting as this follows a large 10K AAPL May 460 call ticket which went off last week just 2 minutes before the close. Calls outnumbered puts 1.8 to 1 in today's trading session.

Statistics and Screenshot Provided By LiveVol

A name which I wanted to get into today but did not was Michael Kors (NYSE:KORS) after selling off more than 5% on the day. The stock fell on rumors of growth and a sales slowdown. Interesting to me KORS actually saw heavy put action last week but this was not the case today as the most active strike was the March 55-57.50 call spread being bought more than 5K times. This is interesting to me as this is a significant bet believing KORS will rebound between now and Friday's option expiration. Option activity was heavy in this name today trading more than 71K contracts versus just 19K which trade on a typical day. On the day net calls were purchased to the tune of 1.2M in premium against puts also being net purchased to the tune 141K. On the day calls outnumbered puts 3.7 to 1 with more than 6.6K KORS ISE contracts also trading during the session. I bought some diagonal spreads on this name looking to play a snapback.

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

Halozyme (NASDAQ:HALO) 96% - 4.9K OTM calls bought on offer

Copart (NASDAQ:CPRT) 85% - 4.3K OTM calls bought on offer

Finisar (NASDAQ:FNSR) 79%

Heckmann (HEK) 66% - Call buying ahead of earnings looking for a pop.

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

Dean Foods (NYSE:DF) 88% - 8.9K OTM puts bought

Sandridge (NYSE:SD) 59% - Big buyers of April 5 strike puts 16K times. Could be closing of short check OI.

Weight Watchers (NYSE:WTW) 1K ISE puts bought

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, KORS, MTGE, NRG, TLM, TUMI, and I am short ARUN, BIDU, DDD, EDU, LULU, SPY

Trades Today: Sold some NRG calls on the pop, Sold some BA, Bought KORS long

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.