VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment

Friday S&P futures were soaring after the Greek debt deal and positive job numbers were announced. The S&P was trading as high as 14 handles up in the pre-market showing the blip we experienced on Tuesday was again nothing but a buying opportunity. In two trading days we have re-taken the 30, 20 and 10 day moving average and are attempting to re-close above the 1370 mark.

The spot CBOE Volatility Index (VIX) was absolutely obliterated today moving down more than 30% from the Tuesday highs. Volatility ETFs (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) continue to be taken to the woodshed as contango dominates the VIX futures. Today VXX options were crazy bearish (bullish for the market) with the exception of a large January 35 put seller of 10K contracts the net premiums continue to show speculation to the downside in VXX. Volatility sellers in the VIX came back into the market today as shown with the VIX futures below.


March VIX futures 19.70

April VIX futures 23.23

May VIX futures 24.93


March VIX futures 19.35

April VIX futures 22.83

May VIX futures 24.53

Options Paper

U.S. Steel (NYSE:X) today saw some paper come in with the July 30 calls trading more than 10K times for 1.63. This $1.63 million bet is betting X will continue to push higher in the coming months. This name had an amazing January but has backed off the highs as money rotation came into play. Options paper came in heavy also adding the April 28 calls and selling the weekly 26 calls which were bought last week. Puts overall were sold on the bid as confirmed by net premiums showing continued flows into calls. Overall calls outnumbered puts 2.5:1 on the trading day on pretty normal volume.

The S&P ETF (NYSEARCA:SPY) has lit up recently with option paper and today is no different. Today two large single print quarterly 145 calls were bought on the SPY some 91K times. This is interesting as SPY would need to rally significantly through the rest of the month for these to pay off breaking to multi-year highs. The calls went off for .06 and .07 and could really move if we continue this accelerated uptrend move. This is the first net premium positive day on the call side in quite some time but the puts were also very active but buying further out. Keep an eye for open interest to change as this could be a signal moving forward of things to come.

The Emerging Markets ETF (NYSEARCA:EEM) saw some more interesting bearish paper as some continue to bet on a pullback. Today a single block 42-37-32 put butterfly went off 20K-40K-20K times for .69. This is a $1.38 million single bet where if EEM retraces to 37 in May they would make $8.62 million in profit. These as with all option butterflies is really threading the needle in terms of a trade. These are really high risk high reward and can profit greatly from time/volatility collapses as well. Overall net premiums in this name were very bearish today as calls sold heavy and puts bought more than 82% on the ask. Puts outnumbered calls 2.5:1 on the day today on normal trading volume.

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

Calls outnumbering puts:

VeriSign (NASDAQ:VRSN) 71:1

Endo Pharma (NASDAQ:ENDP) 67:1

Jefferies (JEF) 45:1

McKesson (NYSE:MCK) 43:1 (Exiting of profitable trade earlier in week)

Gran Tierra (NYSEMKT:GTE) 246:1

Raptor Pharma (NASDAQ:RPTP) 3000:1 (Possible closing transaction check O/I)

Puts outnumbering calls:

Deutsche Bank (NYSE:DB) 4:1

Industrial ETF (NYSEARCA:XLI) 5:1 (Most sold so it would be bullish)

Technology Sector (NYSEARCA:XLK) 7:1 (Huge % made up by AAPL could be a proxy to short AAPL)

Quicksilver (NYSE:KWK) 146:1 (Short put roll so this is bullish as well)

J.C. Penny (NYSE:JCP) 6:1

ConAgra Foods (NYSE:CAG) 172:1

Volatility Explosion

Green Mountain (NASDAQ:GMCR) saw volatility explode more than 10% points higher after dropping more than 15% after Starbucks (NYSE:SBX) announced a competitor to the K-cup machine. Option volume was very heavy, trading more than 2x average daily volume going into the noon hour. Calls and puts were being bought and sold in almost even lock step showing bears and bulls are continuing to fight here. Interesting here is just yesterday someone sold 2,300 of the March 67.5 calls for .41 and used the proceeds to buy 2,300 of the March 55 puts for .79. Today the entire 2,300 puts were sold for 2.96 which probably provided a long shareholder some protection against the slapping GMCR took overnight.

Volatility Implosion

Carnival (NYSE:CCL) today saw IV implode more than 25% relative to yesterday. CCL came out beating estimates today but warning/guiding down. Yesterday I put on a trade selling the volatility of the out of the money call and put options using ratio spreads which is up on a double today. I'm covering the naked puts and calls and now I'm technically long both call and put spreads for no cost. Overall options premium showed calls being sold and puts being bought but the percentage of bought on ask and sold on bid were almost dead even. Options activity was more than 2.5x average daily volume today.

Speculative Play Friday

So last week I had a short on the gold ETF (NYSEARCA:GLD) which weekly put buyers were hugely rewarded for those who took gains on Tuesday's sell off. This week is another short thesis following again the options activity of late. Yahoo (NASDAQ:YHOO) has been underperforming the market in leaps and bounds and earlier this month a buyer stepped in buying the July 12 puts 20K times. Looking at the technical charts the MACD and price action is starting to roll over as rumors of a takeover subside. My trade here was following the July 12 puts but with a twist. I sold the bear July 16-18 call spread and used the proceeds to buy the 12 puts for a .10 credit. If YHOO stock is anywhere in between 12-16 the trade would profit 100.00 per contract at July expiration but I do not expect to hold this through expiration. A run of YHOO just 5% lower would have this trade up significantly and I would take some profits and let the rest run.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, FAZ, X, KERX,


I own strangles: CCL

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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