VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

Monday, the markets were responding initially very positive to the Greek deal out of Europe. This response was somewhat muted after Japan's GDP came in lower than forecast at -0.6% versus an estimate of -0.3%. Tomorrow some big numbers are due out with German Economic Sentiment and core retail/retail sales coming out before the bell tomorrow. The interesting action today was simply the VIX and S&P index. The S&P traded to 1350 in an instant after the open but the VIX continued to stay somewhat elevated above the 19 level.

Volatility ETFs (NYSEARCA:VXX) and 2x ETF (NASDAQ:TVIX) at the open were slapped back as futures faded as one would expect. The only thing holding up the VIX futures at this point is SPY and SPX puts continue to be bought more than 50% of the time and are trading almost 2:1 outnumbering calls. This is reflected as February VIX settlement is Wednesday opening print.


February VIX futures 21.80

March VIX futures 23.60

April VIX futures 24.30


February VIX futures 19.58 (Down 10%)

March VIX futures 22.10

April VIX futures 23.45

SPY saw 3:1 puts outnumbering calls but today the bought on ask was much lower than the last six trading sessions. Today the puts were bought 40% of the time but the majority of this is because the largest trade of the day thus far was a large 128-118-108 March quarterly put fly. This 10.00 put fly went off 25K-50K-25K for .70 which equates to a 1.75 million dollar hedge. If the SPY was at 118 on March expiration it would equate to a 23.25 million dollar gain for the long SPY fly. This was followed up by the Nasdaq ETF (NASDAQ:QQQ) puts were bought more than 52% of the time on the ask which follows the negative market sentiment over the last seven trading days.

Options Paper

Citigroup (NYSE:C) today saw a massive seller of the September 40 puts today for 8.05. Today 45,000 of the September 40 puts were sold in a single block for a total net credit of 36.25 million believing C could continue to run to the 40 level between now and September expiration. This single trade was almost half the total number of puts trading today. As one would expect the puts outnumbered calls today but with 80% sold on the bid this appears to be bullish for this widely held mega bank.

Seattle Genetics (NASDAQ:SGEN) saw a bear come in today buying 2,000 of the February 20 puts just before earnings. Implied volatility has increased going into earnings so this buyer is paying up for these as what appears to be an outright bearish bet on this name between now and Friday. This most likely will either be a home run or a lose everything trade for this trader. (NYSE:CRM) saw a trader sell 7K of the March 125 calls today for 12.70. Interesting part regarding this trade is this effect a call roll as these calls netted the trader more than 4 million on the trade doubling in two days from 4 to 8 million. He then took ~6.6 million of this trade and rolled it to a March 135 - 150 call spread for 6.00 another 11K times which leverages this even higher. This would turn the 6 million into more than 16.5 million in just 33 trading days. On a CRM pullback I will consider getting into some version of this trade myself.

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

Calls outnumbering p;uts:

Shaw Group (NYSE:SHAW) 95:1

Jabil Circuit (NYSE:JBL) 45:1

Dollar Thrifty (NYSE:DTG) 41:1

TiVo Inc. (NASDAQ:TIVO) 31:1

General Mills (NYSE:GIS) 28:1

Newell Rubbermaid (NYSE:NWL) 25:1

Talisman Energy (NYSE:TLM) 25:1

Power-One (NASDAQ:PWER) 44:1

Puts outnumbering calls:

Pitney Bowes (NYSE:PBI) 6:1

Kinross Gold (NYSE:KGC) 6:1 (May 10 puts appear sold 8K against open interest)

Japanese Yen ETF (NYSEARCA:FXY) 6:1 (Follows up huge 53:1 on Friday)

Russell 2000 ETF (NYSEARCA:IWM) 5:1

E*Trade (NASDAQ:ETFC) 5:1

Gap Inc (NYSE:GPS) 5:1

VeriSign (NASDAQ:VRSN) 27:1

Volatility Explosion

Chelsea Therapeutics (NASDAQ:CHTP) has seen quite a bit of option activity lately and today the stock dropped 32% on heavy volume and the options again were active. The implied volatility screamed up more than 18% to 235% in today's trading session. Options activity was actually overall bullish as the puts today were actually sold more than 65% of the time and thus appears some people are positioning for a rebound.

Zynga (NASDAQ:ZNGA) today on more than 5x call volume saw some large call trades today. The March 11 calls went off today with the 11's going off for 2.90 and the 13's going off for 1.86. Interesting part on this was the bid/ask on the 11 calls was 2.85x3.00 at the time and the 13's had a 1.80x1.90 spread. The 11 calls appear to be sold but overall net premium would show a bullish overall tone. Very mixed trading so no directional tell here but interesting nonetheless as implied volatility continued to increase throughout the day. Calls outnumbered puts 5:1 on the trading day.

Volatility Implosion

Diamond Foods (NASDAQ:DMND) as reported on the sonar last week saw a 250.00 bet turn into 50K overnight. DMND again traded down hard today but implied volatility continued to leak out of this name. The largest option flows today were put buyers in the name as implied by net premium and deltas. The bought on ask percentage was 35% but when you back out the large 1750 February 25 put seller this number jumps hard to the 45% level. The March 25, 20, and 17.50 puts were active today. Calls were also bought today but almost all were done with spreads. Puts again outnumbered calls on more than 4.5x average daily volume.

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, EEM, LYV

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.