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VIX - Market Sentiment:

Wednesday S&P futures were off to the races early climbing 6 handles to the 1376 level before drifting back towards the open. A lack of negative news out of Europe combined with a good GDP number had markets off to the races in early trading. Although yesterday was the first close above 1370 for the S&P and 13K on the DOW today some traders took profits.

Amazingly to start the day the spot CBOE Volatility Index (VIX) was crushed even when the selling came into today's market as people continue to refuse to bid up the index puts. Volatility ETF's (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) were down early as futures traded down but recovered towards the end of the day as selling pressure increased driving the front month VIX futures slightly higher with back month fading just a touch. VIX futures are listed below.

Yesterday

  • March VIX futures 20.93
  • April VIX futures 24.05
  • May VIX futures 25.68

Today

  • March VIX futures 21.00
  • April VIX futures 23.90
  • May VIX futures 25.53

Apple (NASDAQ:AAPL) absolutely dominated the contracts today trading more than 80K in the first 8 minutes. AAPL More than 1.2M contracts traded today with the market only trading around the 16.2 all day. For the last 16 out of 18 trading days someone who bought an at the money weekly call option could have sold it for a double towards the close of the day. Even today where AAPL reversed calls were bid up to crazy levels with the weekly calls having the 575 strike bid at .85. This would be another 30.00 move in less than 3 trading days on no news but traded there none the less. These calls ended the day bid at only .33 so those who sold up there made some nice cash today. At one point AAPL made up more than 10% of total option contract volume which is just insane given just how big the market is. S&P ETF (NYSEARCA:SPY) and NASDAQ (NASDAQ:QQQ) put activity both picked up today but was still less than average. Market sentiment remains overall bullish as the market trades in lockstep with AAPL.

Options Paper:

I normally doing put trades like this in the option paper section but today I want to highlight the activity in the Ultrashort Financial 3x ETF (NYSEARCA:FAZ). Call options were more than 2.5x average daily volume with 53% bought on the ask. This is very interesting as FAZ being a 3x ETF typically has large premiums built in with large spreads in the options name. However, activity has really rocketed up of late with the largest trades of the day being a buyer of the January 2013 110 calls. This would be an absolute implosion for these to pay off between now and January. More interesting to me was the action in the April 26 calls which traded more than 28K as of the writing of this article. Some large buyers came in around the 10:00 range and activity just took off from there. Overall calls outnumbered puts almost 6:1 on this name as some traders believe a significant pullback could be in store here. I will look for confirmation tomorrow in the Financial ETF (NYSEARCA:XLF) and could look to pile into this trade.

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

Calls outnumbering Puts:

American Superconductor (NASDAQ:AMSC) 274:1

Old Republic (NYSE:ORI) 193:1

Omnicare (NYSE:OCR) 47:1

TransCanada (NYSE:TRP) 85:1

Cedar Fair (NYSE:FUN) 130:1

Dollar Thrifty (NYSE:DTG) 125:1

Allstate (NYSE:ALL) 29:1

Brocade Communication (NASDAQ:BRCD) 28:1

Puts outnumbering Calls:

Safeway (NYSE:SWY) 17:1

Leap Wireless (LEAP) 15:1

Alcatel-Lucent (NYSE:ALU) 11:1

AnnTaylor (NYSE:ANN) 8:1

China ETF (NYSEARCA:FXI) 7:1

Red Hat (NYSE:RHT) 6:1

ConAgra (NYSE:CAG) 16:1

Quicksilver (NYSE:KWK) 15:1

ASML Holdings (NASDAQ:ASML) 34:1

Thompson Creek (NYSE:TC) 33:1 (March 8 and Sept 7 puts very heavy)

Volatility Explosion:

Yesterday it was Ultrashort Silver ETF (NYSEARCA:ZSL) today the Ultralong Silver ETF (NYSEARCA:AGQ) was demolished after trading down more than 10% today. Silver has been on an absolute tear of late and the ZSL calls bought yesterday are screaming today more than doubling from yesterday. Today heavy call selling and put buying dominated the AGQ name confirmed by net premiums in each. Options activity was more than 4x average daily volume with calls outnumbering puts 1.5:1.

Volatility Implosion:

First Solar (NASDAQ:FSLR) saw IV collapse today and more 10% drop in share price after reporting a terrible quarter and guidance last night. As noted on the sonar report the last 2 days heavy put buying has been extremely dominant in this name. Puts traded heavier than calls today but the largest plays continue to be to the downside for FSLR. Calls continue to be sold and the puts just keep getting bid up. June / April calendars were popular today as people buy the June puts and finance part of the purchase with the April puts. This is allowing traders to get a slight edge every day as it is a positive theta play as the April puts decay faster than the June. Overall puts outnumbered calls 1.5:1 today on more than 3x typical volume.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long SDS, APC, TBT, PCLN. I am short: PBI, FXE, DB, EEM, AAPL, LYV, BSFT

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.

Source: VIX - Options Volatility Sonar: Wednesday Recap