VIX - Options Volatility Sonar: Friday Recap

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VIX - Market Sentiment

As many of you know I am nothing more than a volatility junkie and will continue to be such for many years to come. I do believe reading volatility and understanding it can be the keys to unlocking gains or even more important protecting against losses. As I stated in yesterday's recap I do believe the January VIX settlement probably was manipulated somewhat higher to protect those who were short puts.

That being said The CBOE Volatility Index (VIX) options markets have been showing some warning signs of late, but the spot VIX and VIX futures have showed anything but fear. The VIX today cracked below the 19 range which even fabled CNBC analyst Jim Cramer believes to be too low at this point. The biggest trade on the VIX today was once again a bullish bet on the VIX selling the VIX 19 Feb puts for .40 42,000 times. This follows other large bets within the VIX showing puts being sold and calls being bought. Many traders here are continuing the trend to buy further out protection in other methods such as the Nasdaq ETF (NASDAQ:QQQ), Russell ETF (NYSEARCA:IWM) and S&P ETF (NYSEARCA:SPY).

Financial ETF (NYSEARCA:XLF) saw some very bullish call rolls believing the financials will continue to move higher. Large 20K, 21.3K, and 10K call rolls dominated the option volume. This is in direct contrast to the Industrials (NYSEARCA:XLI) which has seen very large put spreads being purchased for both February and March. This would signal a possible rotation out of industrials and possibly into financials. I personally believe with the large VIX call options and market seeming tired, next week could possibly be due for a pullback.

Options Paper

The gold ETF (NYSEARCA:GLD) today saw a large 17.6K call purchase of the 171 calls betting for further upside. The trade went off at the same time of selling 17.6K 151 puts for 4.15 allowing the trader to put up only 1.00 for an upside bet. This obligates the trader to buy 151.00 which would be a very heavy support for GLD as moving averages provide support around 151.00. I have no position in GLD and have never been a fan of such but one cannot deny the trend recently has been bullish.

NetApp (NASDAQ:NTAP) saw a large 7K March 39 call purchase today which almost matched the normal daily volume of 8K contracts. This volume along with 45% of calls being purchased at the ask would show this is a bullish case believing a run above the 100 DMA could be upcoming. The theme in NTAP trading today was calls being bought and puts being sold on volume which was more than 3x normal. NTAP continued to fall throughout the day down 2% on the day.

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

Calls outnumbering puts:

Credit Suisse (NYSE:CS) 34:1 (Calls have been lighting up this name)

Scripps Networks (NYSE:SNI) 29:1

Finisar Corp (NASDAQ:FNSR) 37:1

Nuance (NASDAQ:NUAN) 25:1

Sara Lee (SLE) 24:1 (Another real hot name of late)

Mattel (NASDAQ:MAT) 22:1

Melco Crown (NASDAQ:MPEL) 28:1 (Large 12.6K call purchase for April 14 strike)

Puts outnumbering calls:

German ETF (NYSEARCA:EWG) 14:1

Ultra Petroleum (UPL) 10:1

Ingersoll-Rand (NYSE:IR) 10:1

Omnicare (NYSE:OCR) 9:1

Kellogg (NYSE:K) 14:1

Gerdau S.A. (NYSE:GGB) 281:1

Volatility Explosion

Keeping on the conspiracy theory plays, IV has exploded to the upside in Sears Holdings (NASDAQ:SHLD) as the stock has run more than 35% in just five days. Today early rumors of Eddie Lampert taking SHLD private sent the troubled retailer soaring. An interesting side note: Open interest on SHLD options priced max pain for January expiration at the 50.00 level. This is interesting as the stock was trading at 30.00 just last week. Today January option holders of 6,000-plus puts saw their puts go up in smoke where the holders of the more than 13K calls from 40 to 47.50 strike calls exploded to the upside. I sold the volatility on the calls to the upside shorting the 50 and 52.5 calls and covering them with around an hour left of trading. The skew of options continues to show extreme option premium to the downside with limited movement to the upside. If one does not believe the rumor to be true put spreads could pay off big as the implied volatility continues to rise in this name.

Volatility Implosion

Today the implosion meter was off the charts. Many large companies such as Google (NASDAQ:GOOG), Skyworks (NASDAQ:SWKS), International Business Machines (NYSE:IBM), Suntrust (NYSE:STI), Microsoft (NASDAQ:MSFT), Intuitive Surgical (NASDAQ:ISRG) and Intel (NASDAQ:INTC) all reported. GOOG and ISRG were down big after profit taking and reports disappointed the Street. In comparison INTC, IBM, STI and MSFT continued to lead the charge for the bulls. IV collapses after almost every earnings but it is important to note some are trading below HV after earnings which could be a play moving forward. There are a massive number of S&P companies reporting next week so we will see where we stand after next week to see if the volatility continues to come out of the market.

Speculative Play Friday

Today's speculative play is a very simple play on a recently beaten up Canadian Gold Miner, Kinross Gold (NYSE:KGC). On a technical basis KGC has a terrible chart and is not trading well. However, if you look at the fundamentals KGC is trading at a very big discount. KGC trades at a price to earnings of 12.51 and a PEG ratio of only 1.02. This is in far comparison vs. the industry average of 20.84 P/E and 2.15 PEG ratio. In addition to this the price to book is currently trading under liquidation value of with a value of .76. With industry average price to book values of 3.44 I see this as a potential takeover target. As the same thesis with Walter Entergy (NYSE:WLT) I used on a speculative play a few weeks back I think KGC could be a target of larger companies flush with cash putting this cash to work. Just things like takeover chatter could send this thing to 12.00 in a heartbeat. I'm looking to do a risk reversal on this name and believe selling puts to buy calls could unlock great value in the future. A few trades went off today such as a trader buying the 13/17 call spread 1:2 for .02 which would net the trader a max profit of 300K off just 2K of total premium paid.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long AGNC, SDS, APC, TBT


I own Straddles: MCP, DB

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.