VIX - Options Volatility Sonar: Thursday Recap

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VIX - Market Sentiment

Thursday followed up the amazing day we had on Wednesday with S&P futures trading higher on the backs of a great report out of Caterpillar (NYSE:CAT). Caterpillar beat the street by a mile and raised its revenue outlook for 2012 now expecting revenue of 68 to 72 billion and expects to earn around 9.25 per share. Other companies beating expectations were Bristol-Meyers (NYSE:BMY), Time Warner (NYSE:TWX), and 3M (NYSE:MMM).

Once again it appears the long volatility trade was wrong again as The CBOE Volatility Index (VIX) continued its march toward 17. Then the rally began to fade with the VIX perking up but VIX futures were actually down as depicted below.


  • February VIX futures 20.65
  • March VIX futures 22.65
  • April VIX futures 24.30


  • February VIX futures 20.58
  • March VIX futures 22.50
  • April VIX futures 24.23

The futures initially sold off hard on the rally, but then crept back up as the S&P faded into the close. The popular Volatility ETF (NYSEARCA:VXX) today as the delta between February and March continues to increase. Today VIX call spreads were going off left and right and popular S&P ETF (NYSEARCA:SPY) puts were also very popular on the buy side. Although I believe SPY puts will continue to outperform VIX calls here if someone wanted more leverage to the downside Ultrashort ETF (NYSEARCA:SDS) calls make large correction bets much easier here. Feb 14, 15, 17, and 18 SDS calls were bought across the board today and although these have been seen before today the puts were clearly sold and calls bought on SDS which shows bearishness.

Options Paper

Today in yet again another strong tape one contrarian went against Staples (NASDAQ:SPLS). The purchase of more than 2.1K February 16 puts is a solid bet the retailer could have come a little too far too fast. Puts normally only trade 1.4K in a day and had already exceeded 3K with 91% bought at the ask. Staples has run from 12.00 to 16.00 in what seems to be no time at all and it appears some bears believe this could be due for a fall.

Anyone who reads my articles knows I do not care for banks one bit. Today it appears as if one player agrees with me when the April 40 puts were bought for 2.45 almost 11K times. In addition to this the March 45 / 35 put spread for was the second largest bet today. There was more than 3 million in net premium on the put side showing along with the slight IV uptick of 4% this was defiantly buying pressure. I joined in by buying the April 40 puts piling in on the short thesis. I will look to spread this out as we approach earnings and volatility increases. Puts outnumbered calls more than 10:1 on the day.

Qualcom (NASDAQ:QCOM) saw a very large collar (Bearish) play on in the March expiration. Today probably a long shareholder sold 7,500 of the March 62.50 calls for .55 and bought 7,500 of the March 50 puts for .43. The trader collected .12 and will produce a decent dividend between now and March and will protect the trader greatly if we see a correction as this stock has been ripping higher since December going up 8 straight points. Although call put ratio was not a huge divergence calls were sold 53% of the time at the bid and puts were bought at the ask 42% of the time. QCOM traded down 2% on the day.

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

Calls outnumbering Puts:

  • Skullcandy (NASDAQ:SKUL) 119:1
  • Harmony (NYSE:HMY) 55:1
  • Solarwinds (NYSE:SWI) 82:1
  • TiVo Inc. (NASDAQ:TIVO) 15:1
  • Bunge Ltd. (NYSE:BG) 18:1
  • Hertz (NYSE:HTZ) 26:1
  • Sirius XM (NASDAQ:SIRI) 17:1

Puts outnumbering Calls:

  • Forest Labs (NYSE:FRX) 20:1
  • Robert Half (NYSE:RHI) 35:1
  • Big Lots (NYSE:BIG) 101:1
  • Globe (NASDAQ:GSM) 9:1
  • Shaw Group (NYSE:SHAW) 9:1
  • China ETF (NYSEARCA:FXI) 6:1
  • Homebuilders ETF (NYSEARCA:XHB) 6:1

Volatility Explosion:

Today True Religion (NASDAQ:TRLG) implied volatility exploded to the upside by more than 25%. This occurred when a flood of relative puts came in as this name only trades 122 puts a day. Approaching the noon hour TRLG had traded more than 2750 puts. Calls were bought 59% of the time at the ask and appears to be puts being bought.

Volatility Implosion:

Netflix (NASDAQ:NFLX) yesterday saw an almost parabolic level of volatility in the weekly and even front month options. With weekly volatility going north of 300% and front month being near the 99% range options were crazy expensive in this heavily traded name. Today it appears some bulls continue to step in and as shorts positions via puts were taken to the cleaners. The interesting point regarding this as initially the 36 puts and 33 puts were sold at the open and 30, 31, and 32 bought possibly to try to collect a credit. Regardless this thinly traded name will be in for some interesting trading prior to February expiration.

Mead Johnson (NYSE:MJN) which saw volatility explode after the issue related to the possible tainted formula has come ripping higher and now sits at a fresh 52 week high. IV collapsed today by more than 16% as the average IV dropped to just fewer than 27%. Calls were clearly bought and puts sold today as net premium showed an exit of put protection after the report beat the expectations of analysts.

As always, happy trading and stay hedged. Remember equity insurance always looks expensive until you need it!

Disclosure: I am long SDS, APC, TBT, VIX, FTR. I am short: SIAL, RAX, LNKD, AMZN, TMO, KWK, PBI, FXE

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.