VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment

What a yawn of a trading day. Wednesday, S&P futures were basically flat and traded pretty much that way throughout the day. Again the largest option trades other than dividend stealers such as Intel (NASDAQ:INTC) were popular equities - the S&P ETF (NYSEARCA:SPY), Nasdaq ETF (NASDAQ:QQQ) and the Russell ETF (NYSEARCA:IWM). The trading today was odd as the bulls are fighting to get above the 1333.47 highs of the SPX.

The spot CBOE Volatility Index (VIX) was down another 2.16% today as the market moved between positive and negative territory all day long. Once again people who are long "volatility" (I hate that term because it's effectively short the market) were beaten up again as the VIX futures continue to melt down as the market continues to hold gains. The reaction to the positive unemployment claims number today was fairly muted as last month's number was revised up 2K.


February VIX futures 19.88

March VIX futures 22.05

April VIX futures 23.65


February VIX futures 19.53

March VIX futures 21.78

April VIX futures 23.40

This is interesting as the contango has somewhat began to tail off but as the holders of equities continue to refuse to hit the sell button the market is incredibly calm. Volatility ETF's (NYSEARCA:VXX), (NASDAQ:TVIX) and (NYSEARCA:VXZ) again traded down across the board following futures lower. Another VIX backspread was opened today as buyers of the 21 puts and the 23 puts and then selling of the 17/18 /19 puts against these positions continue to be very popular

Options Paper

Nuance Communications (NASDAQ:NUAN) saw almost 4x normal daily call volume today as calls outnumbered puts 7:1. The hot strike today was the February 33s as these were bought more than 80% of the time the way out of the money calls traded from .15 up to .45 throughout the day. It appears bulls believe the good price action in suppliers of Apple's (NASDAQ:AAPL) iPhone after earnings could leak through to NUAN, the makers of the now infamous talking program Siri. These calls would require NUAN, which reports February 9th, to hit new highs and power through them. I am getting more and more bullish in this name and participated by buying a 1:2 call spread. Option paper has been strong in this name and I will look to add on pullbacks as I do believe a correction or at least market breather is needed at this point.

Fifth Third (NASDAQ:FITB) today saw a flood of call buying, more than 43% on the ask earlier today as the March 14 calls were bought across the board. Banks are not my favorite name and this is just barely over normal volume but the calls outnumbered puts more than 17:1 on the day. Although I have no position and other than a short Deutsche Bank (NYSE:DB) position I try to stay away from the financials.

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

Calls outnumbering puts:

Janus Capital (NYSE:JNS) 3633:1 (Yes only 1 put traded at the time of this writing)

New York Bancorp (NYB) 868:1

Boise Inc (NYSE:BZ) 510:1

Knight Capital (NYSE:KCG) 105:1

Sonic Corp (NASDAQ:SONC) 83:1

Firstenergy (NYSE:FE) 69:1

Texas Industries (NYSE:TXI) 62:1

DryShips (NASDAQ:DRYS) 43:1

OCZ Technology (NASDAQ:OCZ) 73:1

Centerpoint Energy (NYSE:CNP) 38:1

Rite Aid (NYSE:RAD) 25:1

Puts outnumbering calls:

Host Hotels (NYSE:HST) 167:1

Eagle Bulk (NASDAQ:EGLE) 85:1

KBW Regional Bank (NYSEARCA:KRE) 33:1 (Big buyer of March 25-23 put spread today)

Pitney Bowes (NYSE:PBI) 8:1

Sherwin Williams (NYSE:SHW) 11:1

VeriSign (NASDAQ:VRSN) 19:1

Tellabs (NASDAQ:TLAB) 31:1

AnnTaylor (NYSE:ANN) 10:1

Gold Fields (NYSE:GFI) 6:1

Volatility Explosion

Internet/social networking stocks have been all the rage of late and today was no different. LinkedIn (NYSE:LNKD), RenRen (NYSE:RENN), Zenga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN) have all seen IVs explode to the upside on this Facebook IPO news. These stocks are up huge this week and option writers believe they could be a little overdone. Buying pressure in both calls and puts have been crazy in these names as people continue to look for major upside or downside. Keep an eye on these guys to see if they fade moving forward or if they continue their march higher.

Digital River (NASDAQ:DRIV) reports earnings after the bell today and it appears the thinly traded option name got some love today. Today option premium rose more than 5% as IV creeps back up toward DRIV's 52-week high of 69.65. Currently sitting at a IV rating of 59ish the ATM straddle is predicting a more than 2.00 move on earnings tonight. DRIV missed last earnings estimate by .05 and was crushed so tonight's estimate is .33. We will see what the tape has in store for this super thin options name as tomorrow DRIV front month volatility will more than likely implode.

Volatility Implosion

Fortinet (NASDAQ:FTNT) has had a massive move to the upside and with this stability the IV has been sucked out of the stock after reporting earnings earlier this week. Although calls continue to dominate as they outnumber puts 14:1 the calls are pretty equally bought and sold. IV is approaching a 52 week low here at 42.77 and currently sits at 45.00 which could be a key time to put on a straddle for those who like to play volatility.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, FTR, NUAN

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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