VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday, S&P futures were trading down after the European summit closed without a resolution to the Greek mess. Futures were down more than 8 handles but then recovered into the opening bell. This week will see much less economic data as the major events you should be on the lookout for are below. Tuesday Fed chair Ben Bernanke testifies and we get some key information out of Europe on Thursday with Manufacturing Production and ECB press conference.

The spot CBOE Volatility Index (VIX) perked up today trading over 18 at the open. Long holders of volatility ETFs (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), Proshares (NYSEARCA:VIXY), and Mid-Term VIX ETF (NYSEARCA:VXZ) were rewarded at the open. The interesting price action today was in the VIX futures as front month futures gained while March and April futures faded just slightly. This is positive for ETF VXX as it sells front month to buy back month and thus could potentially work well if this trend continues.


February VIX futures 18.35

March VIX futures 20.90

April VIX futures 22.60


February VIX futures 18.30

March VIX futures 20.70

April VIX futures 22.55

Hedging here becomes interesting as front month futures with only 8 days left will begin to trade more in step with spot VIX. If someone has a short thesis on the market prior to this believing we could sell off VIX calls could be a great play here. The key here is timeframes as February VIX settlement next Wednesday, could greatly move between now and then. March and April VIX futures are still very interesting as they are just slighty down but will still have a long way to come in if realized volatility continues to fall.

Options Paper

The S&P Cash saw some heavy call buying today as the bullishness continues through into the options as many players today sold puts to buy calls. Largest trades today were easy to spot with March 1235 puts were sold to buy the March 1355 calls. Although puts outnumbered calls today the net premium and net delta numbers would suggest the option action today is overall bullish for this market.

The S&P ETF (NYSEARCA:SPY), on the other hand, had very bearish net premium and net delta numbers with the largest trades for the day were March put buying. This is very interesting as the S&P cash is contrary to this position for a potential drop as a large collar went off today with the December 140 calls sold and the December 125 puts bought. Overall puts outnumber calls more than 2:1 on the day.

Intel (NASDAQ:INTC) saw a large July risk reversal today when the 25 puts were sold and at the same time the 27 calls were bought. 33,000 of these calls traded today and the entire spread was bought for .10 debit. The total trade only cost the trader ~330K but is holding 82.5 million in total buying power so this is a good size trader believing INTC is headed to new highs. INTC calls and puts were pretty even across the board with this one trade holding more than 60% of the calls and 75% of the puts as it relates to total volume.

Pitney Bowes (NYSE:PBI) over the last 2 weeks has seen some pretty bearish option paper. Today interestingly enough the bulls have stepped in buying February calls all over the place. This is in direct contrast of the put paper I followed just 2 weeks ago. As this market continues to strengthen I may look to exit puts but am not moving my bearish stance on this name yet. The reason I am staying bearish on this name is average open interest is 25.3K on the call side and 45.9K on the put side. Current open interest on this name is 25.7K in the calls with the exclusion of today's action. This is only 400 contracts north of average. Whereas, puts open interest now exceeds 94,750 contracts, which is almost double average open interest in this name. Puts outnumbered calls 6:1 in this name today with 35% bought at the ask.

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

Calls outnumbering Puts:

Solarwinds (NYSE:SWI) 26:1

Energy XXI (EXXI) 25:1

KeyCorp (NYSE:KEY) 32:1

MEMC Electronic (WFR) 22:1

Hercules Offshore (NASDAQ:HERO) 21:1

Reliance Steel (NYSE:RS) 44:1

Ultrashort Euro (NYSEARCA:EUO) 29:1

Lender Processing (NYSE:LPS) 144:1 (Large buyer of Feb 19 calls)

Puts outnumbering Calls:

Thermo Fisher (NYSE:TMO) 11:1

Popular (NASDAQ:BPOP) 24:1

Sealed Air (NYSE:SEE) 36:1

Deutsche Bank (NYSE:DB) 4:1


Volatility Explosion:

Dendreon (NASDAQ:DNDN) today led the IV explosion chart with an increase of more than 15% on heavy option volume. Today the calls were flying off the shelves as calls were bought more than 40% on the ask adding to even more upside pressure. Going into the noon hour traders had calls outnumbering puts more than 5:1 on almost 2x normal daily volume.

Volatility Implosion: (NASDAQ:SOHU) saw stock prices fall off a cliff more than 14% today after reporting a poor Q1 outlook below analysts' estimates. No clear winner today when it comes to direction as calls and puts were sold and bought across many strikes and expirations. This is typical of a volatility collapse after earnings and should be expected. Although IV dropped more than 12% today it still is not close to the 40.93 IV low as it remains around the 60 level. Directional players can begin to dip their toes into trades moving forward as now with IV being so cheap directional plays can be extremely profitable. Calls outnumbered puts 2:1 on the day.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!



I am short: SIAL, TMO, PBI, FXE, DB

I own Straddles

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.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , Options
Problem with this article? Please tell us. Disagree with this article? .