VIX - Options Volatility Sonar: Wednesday Recap

 |  Includes: FTNT, NI, NKE, ORCL, VXX
by: Erick McKitterick

VIX - Market Sentiment:

Wednesday saw a very interesting pre-market as the US equities saw a slightly down open. The futures drifted down early on from a high of 1249 down to 1223 in the pre-market. This action came from a lack of news or direction out of Europe caused the US Equities to pull back into early trading. This was not helped as US existing home sales came in at 4.42M versus an estimate of 5.04M. Additionally the previous number was lowered to 4.25M from 4.97M from the November reading.

The December VIX settlement was way under the futures coming in at 21.36. Considering the 22.5 puts yesterday traded at just 0.10 expired 1.14 in the money. That’s 1,100% overnight to those who bought the puts just yesterday. Some speculate this is somewhat odd as this is also the first pre-market which traded VIX futures but none the less a very odd settlement. The January / February futures continue to be elevated in comparison to current spot VIX levels. This continues the degradation of the VXX shares as the fund continues to roll prices off of December expiration.

Options Paper:

Oracle (NASDAQ:ORCL) saw more than 3x normal option paper today as more than 165K contracts traded into the mid day. This is in direct response to the ORCL earnings which missed estimates on Tuesday night. The majority of these contracts were on the call side as they outnumbered puts more than 2:1 at one point. It appears some traders took off positions while others rolled positions both out and down in certain cases. Open interest will be the key to see where investors see this stock moving in the next 2-3 months.

Volatility Explosion:

CommVault (NASDAQ:CVLT) saw a more than 50% increase in implied volatility when its shares plummeted more than 18%. ORCL earnings weighed on all tech stocks and CVLT is no different. Additionally a filing of CEO Robert Hammer sold 176K shares for 8.89M has not helped the overall selling pressure. Interesting option volume at the February 48 puts happened earlier today trading from 7.80 to 8.20 and now currently trades at a mark of 10.85. Watch the open interest to see if this was a closing transaction or a new bearish position on the beaten up stock.

Volatility Implosion:

Nike (NYSE:NKE) saw the air come out of options across the board as implied volatility came out of the options across the board after reporting earnings last night. Call volume was almost 5x normal as investors continue to chase performance into year end. More than 21K calls traded across the board with investors looking for yet even more upside in the stock already trading up 3.25% on the day. Some of the trades were some investors buying the January puts as short term protection from a market pullback as the 95, and 90 strikes were both active.

Other Options Action:

NiSource (NYSE:NI) yesterday saw a call roll out to April expiration. Today again this trend continued as the 22.5 calls were sold and this time both the 22.5 and 25 calls were bought in April. This appears as a bullish trade looking for NI to trade up to or above 25 prior to April expiration. Option paper again was more than 10x normal with calls outnumbering puts 232:1.

Fortinet (NASDAQ:FTNT) today saw a large call purchase in the 19 January calls hit the wire. There has been a lot of chatter in the M&A world as it relates to networking companies of late and it appears someone believes FTNT could be next. This bet totals more than 300,000 and believes FTNT will bounce from these depressed levels. FNTN is down more than 10% on the day with calls outnumbering puts 3:1.

Disclosure: I am long HUN, NLY, AGNC, SDS. I am short: DHI, INTC, VXX, FINL, EWG, LNKD.

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.