VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

Monday saw a fairly tight range in the S&P futures only moving 13 handles. We opened near the highs as the S&P opened above the 1320 level. The interesting piece here in my opinion was the CBOE Volatility Index (VIX) actually popped at the open today. This is odd as the S&P opening at the highest level in quite some time would typically show a decline in the VIX and this happened almost immediately as the spot VIX again began the march into oblivion into midday trading.

The market was lead higher by a stronger euro and weaker dollar. Europe index funds followed the DAX higher. The interesting move today was how much the VIX initially spiked into the noon hour once again to begin the fall into late trading as the S&P once again pulled out a gain for the day.

Options Paper

The Home Builder ETF (NYSEARCA:XHB) which has been on fire of late once again saw heavy put selling believing the worst times for the ETF are behind it. Today a seller of the Feb. 18 puts went 10K times showing yet more paper is believing homebuilders may have found support around this area. Puts outnumbered calls 4:1 on the day but this is misleading as the majority of the puts were sold at the ask.

Rubbermaid (NYSE:NWL) today saw a purchaser of the Feb. 17 puts showing a possible continued rotation out of so called "safe" stocks. This was countered later in the day by some decent call buying but either way it appears options believe this thing is ready to move. Puts outnumbered calls almost 2:1 on more than three times average daily volume.

Lockheed Martin (NYSE:LMT) saw some action today as the June 90 calls were the target of bulls. 4.1K of the calls were bought for ~.75 believing the rally in LMT is not done yet. Overall paper has been bullish in this name although my gut feeling is as the government pulls in spending LMT could get hurt but only time will tell. Calls outnumbered puts more than 7:1 on the day.

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

Calls outnumbering puts:

Banco (NYSE:ITUB) 32:1
Molson (NYSE:TAP) 43:1

Puts outnumbering calls:

THQ Inc (THQI) 20:1
Starwood Hotels (HOT) 8:1
Junk Bond ETF (NYSEARCA:JNK) 28:1
Russell ETF (NYSEARCA:IWM) 5:1

Volatility Explosion

Cheniere (NYSEMKT:LNG) was a stock trading at just 8.00 and some change last month but has rocketed up back north of 11.00. It appears as if some bulls believe this could continue as more than 22K of the 33K calls which traded today were bought at the ask. This type of buying pressure always seems to drive up IV and today is no different. Today calls outnumbered puts 5.6:1 on volume four times normal average.

Zynga (NASDAQ:ZNGA) also saw a heavy jump in IV by more than 10%. The calls were bought 66% of the time. The online gaming stock has been flat to down since the IPO but it appears some traders believe there is upside as the March 12s were very active today. Calls outnumbered puts 7:1 on the day.

Volatility Implosion

Rare Element (NYSEMKT:REE) saw IV come in by more than 10% after prices continued to hold the 5.75 level. This stock has been very active of late and IV has went to the moon. Today IV dropped by more than 10 points down to the 77% level and thus options are still expensive here. Mainly puts were sold at the bid on the day however calls were also sold showing some traders continuing to believe volatility could come in further here. REE trade 1.6 puts for every call on today's trading session.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT


I own Straddles: MCP

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.

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