VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment

Wednesday, S&P futures were up big as European woes subsided leading to a large 1% pop. The market was again off to a very strong start with S&P ETF (NYSEARCA:SPY), Nasdaq ETF (NASDAQ:QQQ) and the Russell ETF (NYSEARCA:IWM) all trading up, pushing toward the January 26th highs. These highs of 1333.47 in the SPX cash is key as a push through this level could move the markets to 1340 or 1350 in a heartbeat combined with good news out of Greece.

The spot CBOE Volatility Index (VIX) was crushed down 6% on today's move even with the poor ISM and ADP non-farm payroll numbers. One would have expected a different reaction to weaker than expected numbers especially with the ADP number from last month being revised down more than 30K. Today's big VIX players were all put buyers believing this rally is for real and it appears to be somewhat confirmed in the VIX futures as they traded down hard as well. Regardless, as stated yesterday, the SPY puts and ultrashort ETF (NYSEARCA:SDS) calls continue to outperform the VIX calls so structure hedges appropriately.


February VIX futures 20.80

March VIX futures 22.63

April VIX futures 24.25


February VIX futures 19.88

March VIX futures 22.05

April VIX futures 23.65

This is interesting as the contango continues to crush holders of the VIX ETF (NYSEARCA:VXX) as the futures continue to drop. Buyers of the 21 VIX puts and sellers of the calls have this market jazzed. The largest trade Tuesday was a large hedge to the downside of 13K of the June 30 calls bought in case any European woes continue to hurt the markets. However, today other than a large March 32.50 / 47.50 call spread bought for .65 almost all the paper was buying of the Feb 21 puts. Overall the option paper looks bullish form this side.

Options Paper

US Steel (NYSE:X) has had a monster run from the low 20s to north of 31.00. Today it appears there are two distinct sides of the coin developing. The largest trade on the day was a buyer of the April 36 / 40 call spread for .71 which was done 19.5K times. However, all other trades appear to be mostly call selling done 45% of the time on the bid and puts bought on the ask 49% of the time. This is odd on such an up day as we appear to be stalling here at the 1330 level and X could retrace lower. The price action of this is very interesting after reporting a terrible quarter, missing estimates by a mile yesterday. The conference call did give a decent outlook and the stock has traded up 2.00 since the conference call. I have a neutral to slightly bearish view on this stock as I do believe it could retrace to the 29.00 level in short order.

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

Calls outnumbering puts:

Cosan (NYSE:CZZ) 82:1

Oshkosh (NYSE:OSK) 79:1

Amarin (NASDAQ:AMRN) 43:1

Anheuser Busch (NYSE:BUD) 26:1

Dish Network (NASDAQ:DISH) 23:1

Louisiana Pacific (NYSE:LPX) 20:1

Motorola Mobility (NYSE:MMI) 26:1

Leggett & Platt (NYSE:LEG) 30:1

Puts outnumbering calls:

Excel Maritime (NYSE:EXM) 54:1

Murphy Oil (NYSE:MUR) 44:1

Constant Contact (NASDAQ:CTCT) 34:1

Martin Marietta (NYSE:MLM) 22:1

Westlake (NYSE:WLK) 14:1

Jefferies (JEF) 7:1 (Continued theme recently)

Skechers (NYSE:SKX) 4:1

Fastenal (NASDAQ:FAST) 4:1

Volatility Explosion

ATP Oil and Gas (ATPG) saw an explosion in IV when the small cap lost more than 8% of its stock value. Initially the puts were sold in this name but overall puts appear to be bought across the board on this name as more than 16K puts traded with 53% bought on the ask. This appears to be short term bearish on this small-cap name as this is more than 5x normal volume.

Volatility Implosion

On the implosion category many companies reporting news and big price swings saw IV sucked out of options today. Manitowoc Ord (NYSE:MTW), AOL (NYSE:AOL), Seagate (NASDAQ:STX) and even Chinesse company Dangdang (NYSE:DANG) saw some volatility collapse. Significant put selling appears to have put pressure on the implied volatility. As always when IV drops if one is looking for protection now more than ever is the time to protect those long positions at a discount.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, FTR

I am short: SIAL, RAX, TMO, PBI, FXE, 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.

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

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