VIX/Volatility Options Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Tuesday the market was nothing short of a drifter’s day in the equity markets. The real story of the day was the CBOE Volatility Index (.VIX) indicator which moved back towards the highs going into the close. We opened just short of the 28 in the VIX and initially fell as the markets charged higher. However, as the markets ran into the 200 daily moving average, the rally began to fade on light to slightly moderate volume. Overall the broader markets ended the day up slightly .11% with the VIX also up 1.04% on the day.

Options Paper:

Darden Restaurants (NYSE:DRI) saw almost 9x normal volume after the chain guided much lower than forecast. Almost 9K total options traded after the stock fell as much as 14% in trading Tuesday. The majority of these trades appear to have been call selling and put buying which would show an outright bearish trend in this already beaten down stock. Overall puts traded almost 18x more volume than the daily average.

Volatility Explosion:

H&R block (NYSE:HRB) saw some serious option paper on Tuesday. More than 11x the normal paper hit the HRB options market with more then 27K contracts trading. The interesting part about this is the put/call ratio was almost 9:1. This drove the IV up 18 points and ended the day up 33%. The majority of these puts appear to have been bought and thus traders should keep an eye on this stock for a potential move down.

Volatility Implosion:

Qihoo 360 (NYSE:QIHU) the Chinese internet company saw the air come out of the options market after IV dropped almost 9 points. Not a ton of options paper traded but in a slightly up tape QIHU traded up 3.35% on very average volume. No major news appears to have driven this but investors looking for downside protection could get it much cheaper. Average volatility is north of 80 but currently January options are trading with an implied volatility of 71%.

Other Options Action:

Endo Pharmaceuticals (NASDAQ:ENDP) traded almost 8K puts, which is almost 15x normal volume. All of these traded in the DEC expiration in the 35, 30, and 25 put strikes.

AMGN (NASDAQ:AMGN) saw some pretty heavy paper cross the wires. Normal volume traded with the majority of trading just before the close at the 65 strike. This appears to have been a closing straddle position. Keep an eye to see if this trader moves to a different strike in the upcoming weeks.

Disclosure: I am long SDS, TZA, FAZ.

Additional disclosure: 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.