VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Tuesday S&P futures continued to fly high ahead of the Federal Reserve statement today. S&P futures were up above 1375 again and traded as low as 1366 prior to the open. Markets were also flying after the German ZEW Economic sentiment number came in, blowing away estimates of 10.6 and coming in at double that at 22.3. As stated in previous articles, the resistance continues to melt away as the next charge higher to the 1400-1425 could be very soon.

Following up the craziness in the spot CBOE Volatility Index (VIX) Monday, Tuesday saw the VIX open of just 13.99. Front month VIX futures have been absolutely destroyed of late killing volatility ETF's (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX). Those holding these ETF's continue to get creamed as contango is at the largest point in more than a year. The market continues to discount any type of front month sell-off, believing at least for the next 8 days the all clear is sounded as front month futures continue to be slammed.

Yesterday (Monday)

  • March VIX futures 17.95

  • April VIX futures 22.03

  • May VIX futures 23.93

Today (Tuesday)

  • March VIX futures 16.95

  • April VIX futures 21.03

  • May VIX futures 23.08

As a side note, just last Tuesday when the March VIX futures were at 22+, you could have bought the 22.00 synthetic short (Sold the 22 call and bought the 22 put) for .05 debit. This trade, which would have cost a grand total of $50.00 for 10x contracts, could be sold today at 5,980.00 bid. This just goes to show you just how far the front month VIX futures have collapsed in just 5 trading days.

Options Paper:

The big action on my screen today was the put action in the Treasury ETF (NYSEARCA:TLT). A very bullish bet came across the board today, buying the June 115 puts naked (no type of spread) for 4.10 ask. This move is a 9.5 million dollar bet money will continue to come out of Treasuries between now and the June expiration. This follows some other large bets paying for TLT puts and my personal favorite, Ultrashort Treasury (NYSEARCA:TBT). I have been long TBT for quite some time and my March 18-19 call spread financed with the 19-16 put spread had worked wonders selling the weekly upside call. I will look to roll this out to June now after seeing this very bullish move. Options activity was more than 2x average daily volume, with puts outnumbering calls 2.7:1

Apple (NASDAQ:AAPL) continued its dominance today, moving up again to another all time high. The options premium today was insanely bullish as calls being bought across the board more than 38% of the time and net premiums rising an astounding 23.0 million. The max pain number (the option pain indicator) today showed a March settlements as such.

500 - 1098M
525 - 1028M
550 - 1063M
575 - 1467M

These numbers would indicate option writers would really like Apple to retrace back towards the $550 level to avoid paying out the additional $400M in option premium at March expiration. However, if option sentiment is any indication, they may not get their wish because although both calls and puts were bought, overall call inflows greatly outpaced put inflows, showing yet more bullish moves to come. Calls outnumbered puts 1.4:1 today on almost 2.5x average daily option contracts trading more than 1.25 million contracts on the day.

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

Calls outnumbering Puts:

  • Chubb Corp (NYSE:CB) 81:1

  • Total SA (NYSE:TOT) 70:1 (Dividend Steal)

  • Cintas (NASDAQ:CTAS) 44:1

  • Gap Inc (NYSE:GPS) 27:1

  • American Eagle (NYSE:AEO) 24:1

  • Astoria Financial (NYSE:AF) 55:1

  • eMagin (NYSEMKT:EMAN) 61:1

  • Mead Johnson (NYSE:MJN) 78:1

Puts outnumbering Calls:

  • First Solar (NASDAQ:FSLR) 3:1

  • Juniper (NYSE:JNPR) 3:1

  • Symantec (NASDAQ:SYMC) 4:1

  • Junior Miner ETF (NYSEARCA:GDXJ) 4:1

  • Fastenal (NASDAQ:FAST) 4:1

  • AnnTaylor (NYSE:ANN) 5:1

  • US Airways (LCC) 9:1

  • Lockheed Martin (NYSE:LMT) 5:1

Volatility Explosion:

Rare Element (NYSEMKT:REE) saw IV30 climb more than 12% today after running up and through the 6.00 in this strong tape. Option volume was more than 6x average daily volume, with bears and bulls slugging it out. Calls were bought on the ask 45% of the time out of the 18K calls which traded. Puts were only bought 30% of the time. Implied volatility in this name has been exceptionally low of late, so the return of some straddle buyers is somewhat expected. I've done well shorting these names in the past, but with the momentum of the market, I'm not touching these quite yet.

Volatility Implosion:

Midas (NYSE:MDS) saw IV collapse more than 80% after a takeover deal was struck to acquire the company from TBC Corp. The 173 million all cash deal offers $11.50 per share and appears those long the stock are going to get paid. The calls were heavily sold today as the March 10 calls were sold across the board as well as the April 10 calls to lock in profits. Some people used this opportunity to buy some put protection; September 10 and June 10 puts were bought at the ask .05 offer, in case the deal fell through. Calls were sold on the bid more than 76% of the time on more than 31x average daily volume.

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.