VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment

Friday, was the first time in a long while where futures were off significantly moving into the opening bell. The S&P futures traded down more than 13 handles in the pre-market before recovering and opening around the 1335 level. Negative Europe numbers and news of a lack of a Greek deal heavily weighed on futures.

The spot CBOE Volatility Index (VIX) went north of 20 today at the open. Volatility ETFs (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), at the open performed very well throughout the day and into the close. This is simply due to the immediate spike in front month VIX futures which these instruments track. This is the first time for a VIX reading over 20 since January 30th and is the first close above since January 18th. This skittishness is simply a concern the Greek deal over the weekend could not get done has caused VIX futures to soar as shown below.


February VIX futures 19.85

March VIX futures 21.70

April VIX futures 23.08


February VIX futures 21.80

March VIX futures 23.60

April VIX futures 24.30

This means everything S&P ETF (NYSEARCA:SPY), Nasdaq (NASDAQ:QQQ) and Russell ETF (NYSEARCA:IWM) puts for the sixth day in a row all saw more than 2:1 puts trading over calls with almost 50% being bought at the ask. Today more than 146K ISE puts traded as opening positions and all top block trades today were on the put side of the house. The puts outnumbered calls today more than 2.6:1 and 47% of the puts were bought at the offer price. Interesting here of the calls being bought more than 48% were on the offer so the bulls are not quite done yet. Puts traded more than 2.44 million contracts which were the heaviest of the last six days of heavy put buying.

If one looks at the trading of VXX, TVIX and SPY the price action suggests if we do not have a deal on Monday for Greece we could possibly be in for a very nasty day for equities. Traders who were short "volatility" were paying up big as shown with the large spike in options for these names. Overall option paper was good today as we traded more than 21.5 million contracts as people position for potential market moving news on Monday. Regardless long or short we could be in for a wild week next week, retracing back to pivots or moving through 1350.

Options Paper

Frontier Communications (NYSE:FTR) saw share prices slide more than 3% today and IV move up hard moving into earnings. Just two days after exiting my long on FTR it appears some bulls are betting for a move up in the stock as more than 10x normal calls traded today with 25K bought at the ask. This is more than 70% of the calls bought today were at the ask. More than 28K of the February 4 calls traded today on heavy buying pressure. Calls outnumbered puts more than 3:1 on the trading day.

Newell Rubbermaid (NYSE:NWL) has been hot on the sonar over the last few days and today more than 10K of the June 20 calls were bought between 1.00 and 1.05. NWL calls have been very active of late outpacing puts and this is confirmed as average open interest in NWL for calls is 25K and puts 19K. NWL is now trading before today's action at 57K calls and only 11K puts which is extremely bullish. More than 70% of the calls over the past few days have been bought on the offer which again is bullish for this name. Because NWL follows the market I am waiting until Monday to possibly initiate a move into this position.

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

Calls outnumbering puts:

CareFusion (NYSE:CFN) 3147:1 (Yes 3.1K calls and only 1 put traded today)

Angies List (NASDAQ:ANGI) 626:1 (Mostly call selling)

Take-Two (NASDAQ:TTWO) 129:1

Vaalco (NYSE:EGY) 120:1

LeapFrog (NYSE:LF) 94:1

KBR Inc. (NYSE:KBR) 87:1

Bemis (NYSE:BMS) 79:1

El Paso (EP) 52:1

Pep Boys (NYSE:PBY) 44:1


Puts outnumbering calls:

Japanese Yen ETF (NYSEARCA:FXY) 53:1

International Flavors (NYSE:IFF) 40:1

Vornado Realty (NYSE:VNO) 28:1

Ventas (NYSE:VTR) 26:1

Saks (NYSE:SKS) 20:1

Career Education (NASDAQ:CECO) 17:1

Iron Mountain (NYSE:IRM) 17:1

Teradyne (NYSE:TER) 15:1

Accretive Health (AH) 14:1

Cirrus Logic (NASDAQ:CRUS) 10:1

Kroger (NYSE:KR) 10:1 (Mostly put selling so appears bullish)

Kinder Morgan (NYSE:KMI) 8:1

Germany ETF (NYSEARCA:EWG) 8:1

Qihoo 360 (NYSE:QIHU) 7:1

Volatility Explosion

Believe it or not today the volatility explosion is actually on the volatility ETF VXX mentioned earlier in this article. VXX premium screamed to the upside after heavy climbing more than 25% to the 90% level. Interestingly enough with the stock moving up hard today one would think calls would be the primary buyers here but the puts were also bought today more than 53% on the ask. Option volume was more than 4x average daily volume as puts outnumbered calls more than 1.5:1. The largest trade today was a buyer of the Feb 24-22 put 1:2 spread and a buyer of the April 21 puts 9,229 times for .73. The bears and bulls have battled on this before and it appears we are in for even more in the upcoming weeks.

Volatility Implosion

LinkedIn (NYSE:LNKD) and Nuance (NASDAQ:NUAN) both saw share prices move heavy after reporting earnings last night. This is the tale of two earnings as LNKD reported an unexpected beat in earnings where NUAN missed and had poor guidance. Regardless both stocks IV collapsed more than 20% relative after earnings but the options show two completely different opinions on these names. LNKD saw calls bought and puts sold throughout the day when it relates to net deltas and premiums. NUAN on the other hand saw more call purchasing but did not have the conviction of LNKD as puts were not being sold as much in this name.

Speculative Play Friday

Investors who like earnings plays will like this speculate play Friday. Rackspace (NYSE:RAX) is a name I have been short and wrong on for quite some time. I still am not huge on the name but options activity shows this cloud stock could be ready for a move higher. Today alone 3K of the February 50 calls were bought and this follows heavy call flows over the last few days. I owned the 43-38 put spread following in a large trade back in December which I closed last week which I took a significant loss.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


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

I am short: SIAL, 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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