VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday S&P futures were off to a rough start after Chinese slowdown concerns weighed on the markets. The accelerated uptrend channel which we re-took on Friday was again tested and bounced right around the 10 day moving average of 1366 and change. The resistance continues to melt away here as we again attempt to make a charge higher to the 1400-1425 level.

There was flat out craziness in the spot CBOE Volatility Index (VIX) today getting destroyed to the 15.23 level before recovering. These levels on the VIX have not had readings like this since last April. However, anyone who reads these posts, the VIX is not important in comparison to the VIX futures, which make up and price volatility ETFs (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX). Although the spot VIX was down more than 10%, the VIX futures did not react in the same manner as shown below.


  • March VIX futures 19.40
  • April VIX futures 22.93
  • May VIX futures 24.58


  • March VIX futures 17.95
  • April VIX futures 22.03
  • May VIX futures 23.93

Interesting here as front month volatility continues to collapse while in a relative way back month held ground. Current VIX futures are priced in at an incredible 120% premium to realized volatility which means holders of VIX futures contracts or even VXX would need multiple days of significant selloffs to realize significant gains as contango continues to widen here. The best "Hedge" for those long concerned on a pullback would actually be a collar and buy selling the S&P ETF (NYSEARCA:SPY) weekly calls to finance April puts to leverage against a pullback.

Options Paper:

Option paper seemed anemic today as most of the large blocks were dividend thefts. Stocks like Altria (NYSE:MO), Macy's (NYSE:M), Garmin (NASDAQ:GRMN), NYSE Euronext (NYSE:NYX), and BCE (NYSE:BCE) all had crazy call volume attempting to steal dividends by owning the stock prior to cutoff. A couple of tech plays today Marvell (NASDAQ:MRVL) and Western Digital (NYSE:WDC) both had some decent call buying today but overall action was light at best.

Pulte Homes (NYSE:PHM) saw an inflow of some April 8 puts today just after 11:00. The April 8 puts were bought in good quantities trading more than 23.5K times. The first trade at .20 was busted before being re-established at .21. Although not huge it is a possible show PHM could drop as much as 12% between now and April expiration. Puts outnumbered calls more than 18:1 as of the writing of the article and on 4x greater volume.

Even the almighty Apple (NASDAQ:AAPL) finally had slowdown in the options market only trading a mere 490K options on the day. Considering the market traded north of 15M contracts this is low as recently the markets have pushed AAPL options to around 5% of all contracts traded in a single day. Overall net premiums continue to be very bullish in this name with puts being sold on the bid 37% of the time and calls being bought 36% of the time as AAPL continues the march to infinity.

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

Calls outnumbering Puts:

  • American Eagle (NYSE:AEO) 87:1
  • Targacept (TRGT) 74:1
  • Huntsman (NYSE:HUN) 74:1
  • CMS Energy (NYSE:CMS) 60:1
  • KBR Inc. (NYSE:KBR) 59:1
  • XL Capital (NYSE:XL) 44:1
  • Motorola Solutions (NYSE:MSI) 43:1

Puts outnumbering Calls:

  • Australian Dollar ETF (NYSEARCA:FXA) 10:1
  • Japanese Yen ETF (NYSEARCA:FXY) 9:1
  • Parker-Hannifin (NYSE:PH) 6:1
  • Miller Petroleum (NYSE:MILL) 6:1
  • JDS Uniphase (JDSU) 5:1
  • POSCO (NYSE:PKX) 18:1

Volatility Explosion:

First Solar (NASDAQ:FSLR) as mentioned on the sonar many times has seen extreme put buying of late. Seems every week the put spread buyer just keeps rolling the strikes lower and lower. Today another 50K plus contracts traded with puts and calls being bought up heavily as people speculate as to the next move in this name. Overall net premiums are positive for both calls and puts showing inflows to both. Some large straddles were closed out specifically on the January 2013 120 line in this name. Keep an eye as option activity in this name appears to continue to push the name lower with some upside call buyers betting on a possible rebound.

Volatility Implosion:

Sears Holdings (NASDAQ:SHLD) saw IV come in as option holders hit the pause button when it came to the options. Volume had been climbing to extreme levels of late after this run up. Open interest in the puts has continued to build and today net premium showed calls overall sold and puts overall bought as some players look to brace for any type of pullback. The most often sold calls were the March 65 calls, April 65, 75, and 85 calls to buy the 67.50, 65, and 60 puts. The 67.50 - 60 put spread was heavy in comparison to a light day. Overall calls and puts were even today with volume less than average.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long SDS, APC, TBT, FAZ, X, and KERX. I am short PBI, DB, EEM, AAPL, LYV, BSFT, and YHOO. I own strangles on CCL.

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

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.