VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment

On Friday the accelerated uptrend continued with S&P futures again trading up. We appear to continuously be eating away at that resistance around the 1368 level in the futures and a blow through could spell impending doom for those who continue to be short the market. The consumer sentiment number continued to climb today and new home sales numbers were also very good.

The spot CBOE Volatility Index (VIX) was again taken to the woodshed today opening at 16.68 and trending down to 16.42. This was most likely re-pricing of volatility going into the weekend. Again volatility ETF's (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) took it on the chin earlier with VIX futures down big before reversing toward the end of the trading day as shown below.


March VIX futures 20.45

April VIX futures 23.25

May VIX futures 24.70


March VIX futures 21.00

April VIX futures 23.98

May VIX futures 25.35

The market here continues to be extremely interesting with the divergences which continue to get wider. Oil fund (NYSEARCA:OIH) continues to rise as tensions across the globe continue to pressure oil stocks and futures higher. The market remains in an accelerated channel upward but Ultrashort Treasury ETF (NYSEARCA:TBT) and Long Treasury (NYSEARCA:TLT) are not buying it as they traded inversely to how the market traded today. Typically high oil and increasing treasury prices would be seen as a bad sign for "risk" assets. However, this is probably somewhat offset as the U.S. dollar ETF (NYSEARCA:UUP) continues to lose ground to the increasing strength in the euro ETF (NYSEARCA:FXE). Overall options activity was fairly muted today with just over 12M contracts trading going into the final hour with Apple (NASDAQ:AAPL) again accounting for 480K of these contracts.

Options Paper

MSCI EAFE Index ETF (NYSEARCA:EFA) saw a monster hedge go off after hitting levels not seen in over six months. Today more than 100K of the May 52 - 43 put spread was bought. The position cost the trader more than 11M in premium and would with protection kicking in fully anywhere below 50.88 between now and May expiration which would be more than a 10% correction from current levels. This was followed up with a bearish risk reversal going off later in the day where someone sold 3K of the 59 calls to buy May 46 puts. Option activity on this name was more than 4x average daily volume with puts outnumbering calls more than 16:1 on the name.

Microsoft (NASDAQ:MSFT) - which is a name that seems to make runs on the sonar report - today saw some interesting put activity. More than 44K of the March 27 puts today were bought for .04 which would signal a potential pullback in the near future with only 22 days to expiration. This would be a massive correction in a name like this where people have piled into this name in droves year to date. MSFT would need to correct to the 200 day moving average which would be more than 12% from current levels.

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

Calls outnumbering puts:

Rockwell Collins (NYSE:COL) 40:1

Targacept (TRGT) 33:1

Dover Corp (NYSE:DOV) 67:1

KeyCorp (NYSE:KEY) 41:1

Omnicare (NYSE:OCR) 31:1

Avis Budget Group (NASDAQ:CAR) 90:1

Consolidated Edison (NYSE:ED) 29:1 (March 57.50 calls bought)

Saks Inc (NYSE:SKS) 22:1

Chiquita Brands (NYSE:CQB) 25:1

Puts outnumbering calls:

Check Point Software (NASDAQ:CHKP) 111:1

Live Nation (NYSE:LYV) 40:1 (Buyer of April 10-7.5 put 1:2 to protect long shares here)

Advance America (NYSE:AEA) 30:1

S&P Retail ETF (NYSEARCA:XRT) 18:1

Comcast (NASDAQ:CMCSA) 12:1 (Cheap shot on the puts looking for a BIG pullback. Homerun or strikeout)

Yen ETF (NYSEARCA:FXY) 12:1 (Continued put buying sees this thing lower)

Home Depot (NYSE:HD) 6:1 (52 week low on IV makes hedging here cheap)

Discover Financial (NYSE:DFS) 6:1 (Volume weak but puts were all bought from top 8 trades)

Volatility Explosion

Ivanhoe Mines (IVN) saw option premium scream to the upside as implied volatility shot up. Options activity was more than 3.5x normal with calls outnumbering puts more than 6:1. The amazing part here is the March 20 calls appear to have been bought more than 17K times today as upside call buyers pushed the stock higher. The calls in this name have been crazy active of late and today more than 90% were bought at the ask. This could be nothing more than speculation going into earnings but is interesting nonetheless.

Iron Mountain (NYSE:IRM) saw more than a 35% spike in volatility when large buyers of the calls came in with more than 60% of calls being bought at the ask. IRM traded 55 calls for every 1 put today at one point and the puts which did trade were sold. It appears the bulls are out in full force on this name as price action and options direction is defiantly pointing up for this name. Option volume averages only 300 contracts a day and traded more than 6,300 as of the writing of this article.

Volatility Implosion

Chelsea Therapeutics (NASDAQ:CHTP) saw implied volatility absolutely implode today after being halted all day yesterday pending a decision from the FDA. The options in this name where crazy bullish as reported on the sonar going into this event. Today option premium came out like a popped balloon as option holders of front month calls hit the sell button hard after the stock popped more than 60% on the positive news. Implied volatility of more than 305% signaled CHTP was going to move and was going to move big prior to this news. Today the March 4 and 5 calls were sold and some positions were rolled out to April with the April 3-7 strikes getting some love today. Overall option volume was more than 20x over average daily volume with calls outnumbering puts almost 4:1.

Speculative Play Friday

So we are now 6 for 7 as last week's eBay (NASDAQ:EBAY) calls have more than doubled over the last week with EBAY up more than 1.00 over the week. This week I'm looking to United Technologies (NYSE:UTX) as the call option paper has been crazy bullish of late. Today alone call spreads were going off like wild fire on the 85-87.50 weekly call spread. More than 45% of all options were bought on the ask today with many blocks hitting around the 10:00 range. Calls outnumbered puts more than 17:1 today with what appears to be some bullish bets over the next five trading days. I have some orders in but at the time of submission none had executed.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT

I am short: PBI, FXE, DB, EEM, AAPL, FSLR, 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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.