VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment

After a long weekend S&P futures traded up to the 1368 level just to sell back down to the 1363 level prior to the open. News of a 130B Greek debt deal had markets ripping in the pre-market. European consumer confidence came in as expected with a negative rating but again the market continues to shrug off any bad news.

The spot CBOE Volatility Index (VIX) popped hard at the open moving up to almost the 19.00 level before melting down hard moving into the noon hour. The VIX has seen a very interesting option paper as the March 29/36 call spread has been bought over the last five days. Today this continued but the largest trade was a 10K March 29 call which went off for 1.38 with bid/ask at 1.35 x 1.45 at the time. This was part of a VIX 24-29 1:2 which went off around the 10:42 for a slight credit which would be an extremely profitable trade if March VIX settled at 29.


March VIX futures 22.60

April VIX futures 24.78

May VIX futures 25.78


March VIX futures 22.58

April VIX futures 24.95

May VIX futures 26.05

The markets rallied yet again today with the VIX ticking just barely higher. The ETFs for the Russell (NYSEARCA:IWM), Nasdaq (NASDAQ:QQQ) and S&P (NYSEARCA:SPY) again saw some put spreads coming in large numbers. The 63-58 March put spread was bought 10K times in the QQQ where the SPY puts were bought in some large quantities but calls were also bought. Overall SPY puts were again bought 51% of the time but more than likely it's just longs hedging against a drop but the accelerated channel remains intact and we appear to be inching toward the 1370 level and could be ready to take the next level up. I want to see a close above this level for a day or two and I will get more bullish.

Options Paper

Volatility ETF (NYSEARCA:VXX) today had some good size paper believing the VXX next leg is lower after the March 23-21 put spread hit today 13K times. The 2.00 put spread was put on for just .41 and could more than 5x their money over the next few weeks if front month volatility continues to collapse. Puts outnumbered calls more than 2:1 on the day as it appears some people continue to believe this melt up will continue throughout the next expiration. Other instruments such as 2x ETF (NASDAQ:TVIX) saw some interesting volume today with the DOW going over 13,000.00.

Citigroup (NYSE:C) saw some large March 35 put buyers today 20K times at 2.16 ask. This trade appears to be a short term bet C shares could be headed lower. This is in direct competition to the 40 July puts which were sold last week 45K times. It appears some traders continue to believe this name could be headed lower in the near term while the put seller believes it could be closer to the 40 mark going into the July time frame. Again bulls and bears continue to battle over these names with puts being bought today more than 66% at the ask. Puts outnumbered calls 1.5:1 moving towards the close.

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

Calls outnumbering puts:

Kohlberg (NYSE:KKR) 61:1

ACE Ltd (NYSE:ACE) 42:1

Talisman Energy (NYSE:TLM) 33:1

Discover (NYSE:DFS) 22:1

KB Home (NYSE:KBH) 20:1

Sunoco (NYSE:SUN) 17:1

Nisource (NYSE:NI) 111:1

Hasbro (NASDAQ:HAS) 28:1

Puts outnumbering calls:

Nike (NYSE:NKE) 5:1

Jefferies (JEF) 5:1

Deutsche Bank (NYSE:DB) 9:1

RF Micro (RFMD) 4:1

Wells Fargo (NYSE:WFC) 3:1 (Large seller of April 30 puts today)

Host Hotels (NYSE:HST) 21:1

Financial ETF (NYSEARCA:XLF) 5:1

Volatility Explosion

Lions Gate (LGF) again continued the march higher toward the 13.00 level today and IV shot up today as options action continues to be high. LGF saw more than 10:1 calls outnumbering puts with 73% of calls being bought at the ask with April 13, 14 and 15's being the most active all bought at the ask. Positive net premium on the calls and negative net premium on the puts appear to be bullish as calls being bought and puts being sold. Overall LGF option flows continue to be bullish even after the crazy run from 9 and change to over 12.00 as it hit yet another new 52 week high.

Volatility Implosion

Walter Energy (NYSE:WLT) was a speculative play I announced back around the 58.00 range and after reporting today is again pushing toward the 70.00 level. The implied volatility collapsed today more than 18% after they reported decent numbers. The puts were being sold all day with more than 35% sold on the bid and calls being sold and rolled out and up in most cases. Calls and puts were dead even going into the noon hour and continues to be decently heavy as traders continue to chase performance.

Fusion-io (NYSE:FIO) Friday saw a massive 20% run-up on takeover rumors. The implied volatility screamed to the upside but today fell off as the options activity somewhat subsided. Last Friday I mentioned I shorted the stock by selling the FIO 30 February calls and I used the credit to buy FIO puts. I since have closed this position and no longer am short FIO. Calls still outnumber puts 3:1 but today's flows were overall bearish. I will look to move back into this name around the 26 level.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, ACI


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.