VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment

Wednesday the S&P futures were trading nominally higher. This was on the heels of good news out of Europe showing the Greek debt deal is closer to being done. European markets were up across the board but warning signs signaled when the euro/dollar crossed again below danger territory.

As reported in my sonar article yesterday the February VIX settlement indeed came in above the 20.00 level even with the strong open. February VIX settlement was 20.44 which was priced higher than yesterday's spot VIX, saving option writers more than 66 million in open contract payments. The Volatility ETFs - (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX) - were up again today as front month futures (now March) continue to climb. Futures are pricing in as below.


February VIX futures 19.80

March VIX futures 22.65

April VIX futures 24.13


February Settlement VIX 20.40

March VIX futures 23.80

April VIX futures 25.13

May VIX futures 26.98

Options Paper

The options paper of the day clearly belongs to the high flying Apple (NASDAQ:AAPL). This stock has went absolutely parabolic in the last eight trading sessions adding more than 24B in market cap. All this excitement has options players itching to put on trades and today was no different. In the first two minutes more than 24K calls traded in AAPL as the chase for performance continues. The stock went as high as 526 before retreating during the Fast Money Half Time show on CNBC, dropping like a rock on heavy volume. Interesting is yesterday we had more than 25M of positive net premium flow into options and today is almost opposite with a negative 7.2 million print at the 2:00 mark. Yesterday it was clearly puts sold to buy calls and today it appears exactly the opposite with the largest trades of the day being busted left and right. April 565 calls and puts were all over the place today as traders put on substantial long and short positions in this name. AAPL traded more than 10% of all contracts on the day and accounted at one point for more than 60% of the Nasdaq's gains on the day. Regardless AAPL's price action here has me bearish and I have now on today's reversal went short AAPL for a trade. I purchased the AAPL 500-475-450 March put spread today for 3.50 and also did a weekly put spread 1:2 for a potential short term reversal. AAPL calls outnumbered puts almost 2:1 on the day on more than 3x average daily volume.

Junk Bond ETF (NYSEARCA:JNK) today saw a flood of put buyers coming in buying the Jun 37.74 puts like wild fire. More than 5K traded in a single block which is more than 5x average daily volume in one block. Today the buying came in at .75 and traded up and to the .80 for the block of 5K. These puts are nothing more than an overall bearish bet on the market and will probably serve as a slight hedge for someone's long position. Today puts outnumbered calls 46:1 with 95% of the puts bought at the ask.

In direct contrast to this the China ETF (NYSEARCA:FXI) saw a large 50K call buyer for the February 41 calls which expire in two days. These were bought in a single block for .06 ask 50K times as a cheap upside bet FXI will rally hard between now and the close of Friday expiration. These shares would need to rally more than 2% just to break even so this appears to be simply a cheap shot bet to the upside as 85% of all calls were bought on the ask today with this single block accounting for more than 60% of total call activity. Calls outnumbered puts 2.5:1 on the day as puts were sold and calls were bought across the board.

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

Calls outnumbering puts:

Rite Aid (NYSE:RAD) 625:1 (Second day in a row)

Dreamworks (NASDAQ:DWA) 89:1

Timken (NYSE:TKR) 81:1

Infinera (NASDAQ:INFN) 72:1

Ryder System (NYSE:R) 56:1

McKesson (NYSE:MCK) 54:1

Chicos (NYSE:CHS) 44:1

Nisource (NYSE:NI) 40:1

Harley-Davidson (NYSE:HOG) 31:1 (Dividend steal)

Questar (NYSE:STR) 21:1

Puts outnumbering calls:

Quest Diagnostics (NYSE:DGX) 15:1

Consumer Staples ETF (NYSEARCA:XLP) 12:1

Leap Wireless (LEAP) 12:1

Carnival (NYSE:CCL) 11:1

Atlas Energy (NYSE:ATLS) 9:1

Hasbro (NASDAQ:HAS) 7:1

Amerigroup (AGP) 6:1

High Yield ETF (NYSEARCA:HYG) 12:1 (Play off of JNK)

Suntech Power (NYSE:STP) 9:1

Volatility Explosion

Service provider (NASDAQ:ELNK) reports tomorrow and option premium is exploding to the upside with implied volatility moving up more than 60% in today's session. Today more than 7.6K puts traded with 61% bought at the ask of February and March 8 put strikes. This appears someone is expecting a potential implosion in this stock after earnings which is also indicative of the open interest. Average open interest for calls is north of 13K and puts is 7.4K. In comparison today's open interest in this name is just 3.3K calls and 6.5K puts before today's action. It will be interesting to see where this stock moves going forward but it appears some bears believe it could be down from here. I joined in the frenzy today buying a few of the ELNK puts.

Volatility Implosion

Weight Watchers (NYSE:WTW) and Zynga (NASDAQ:ZNGA) both reported disappointing numbers and their implied volatility running into earnings has collapsed. ZNGA IV fell back more than 26% when WTW fell more than 56% after dropping to a new 52 week low. Put sellers and call buyers dominated these two names with calls bought more than 35% at the ask and puts sold on the bid. Overall option volume continues to be strong in both of these names trading more than 10x average daily volume, but appears to be short term bullish.

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


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.

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