VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Thursday futures began to move again, moving more than 12 handles. Initially the futures were down more than 1% and reversed hard on the ADP non-farm number coming in at 325K with an expected number of 176K. Interesting enough the spot CBOE Volatility Index (VIX) jumped at the open as the S&P (NYSEARCA:SPY) was kicked in the teeth to open.

The VIX at the open saw a pretty decent pop as the SPY sold off but then continued to melt down as the market continued to recover with the SPX trading off just .2%. The interesting part regarding this is the VIX futures were up big at the open with the skew between front and back month futures continuing to widen.

One trade which I found very interesting Wednesday was on the S&P cash. The December 2014 2250 calls were purchased 9,000 times yesterday. This large trade of 1.8M would explode to the upside as it appears one trader believes the S&P would rally more than 97% prior to December 2014. This appears to be a very aggressive trade and will be interesting to see if any more paper flows anywhere near this level.

Options Paper:

SunTrust Bank (NYSE:STI) saw a 5,000 call purchase of the February 20 calls. The majority of the calls traded around the .60 and .61 range which would be a 300K bet that SunTrust will blow through the 100dma and move up toward the 20 range. Options volume was more than 3x normal volume with calls outnumbering puts more than 8:1.

Bank of America (NYSE:BAC) saw an absolute explosion in call activity today but the largest blocks were puts being bought. The March 17 and Jan 2013 5 strikes were both bought 20K times and the August/January 5 calendar traded 41K times. These put spreads would show some hesitation to the 8% run up in stock price today. I'm trying to buy the Jan 6 / 5 put 1:2 for a trade.

Popular ETF's and equity names with bullish / bearish paper in terms of call / put ratios:

Calls outnumbering Puts:

Intuit Inc (NASDAQ:INTU) 66:1

Chico's (NYSE:CHS) 53:1

Dollar Powershares (NYSEARCA:UUP) 22:1

Puts outnumbering Calls:

Avon Products (NYSE:AVP) (28:1) more than 54% sold on bid possible bullish signal

Metro PCS (PCS) 14:1

Currency Shares Euro (NYSEARCA:FXE) 7:1

American Capital Agency (NASDAQ:AGNC) 9.5:1

Volatility Explosion:

Dendreon (NASDAQ:DNDN) today saw IV scream up on the open when it traded up by more than 40%. Calls traded more than 10x normal volume while puts traded more than 12x. Calls outnumbered puts more than 2:1 on the day as DNDN closed up 39.7%. The biggest trade of the day was a block of 3400 January 7.5 puts bought early for .08. Watch this one to see if any profits are rotated somewhere else.

Volatility Implosion:

AVEO Pharmaceuticals (NASDAQ:AVEO) today has continued to see the implied volatility continue to come in. After the news study was released AVEO shares fell sharply from 17 and change down to the 14.50 range. This news release has sucked the volatility out of the options in the near term. Option liquidity in this name is next to nothing so plays on this name can be extremely difficult.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long AGNC, NLY, SDS, APC


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.