VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment

On Thursday markets continued to digest the great price action this week with futures up .25% moving into the open. Another weekly positive unemployment claims number helped to fuel this move as we continue to eat away the 1400 mark in the S&P. Combine this with positive Philly Fed numbers and again we continue to build support. Tomorrow core CPI and Michigan consumer sentiment numbers will be key to extending this rally.

The spot CBOE Volatility Index (VIX) continued to chop sideways in early trading mostly flat on the day. However, today volatility ETF's (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) actually took fractional gains as VIX futures began to increase heading into the noon hour. VIX settlement is next Wednesday and if option sellers have anything to do with it they will try their best to have March futures close around the 20.00 level to avoid paying the increased open interest in the 20 put line. This pain level for option writers has come down significantly in the past six trading sessions and will more than likely continue to do so. VIX futures are listed below.


March VIX futures 18.00

April VIX futures 22.00

May VIX futures 24.00


March VIX futures 17.13

April VIX futures 21.63

May VIX futures 23.60

Options Paper

Apple (NASDAQ:AAPL) today touched a new all time high of 600.00 and today the net premium is decidedly bearish, showing inflows into puts and outflows into calls. A large hedge fund is betting on even more upside after putting on a very large April 610 - 660 1x2 call spread. The majority of this went off at 9:55 today buying the 610's for 26.60 and selling 2x of the 660 calls for 12.50 for a net debit of 2.10. This trade would pay off greatly if AAPL were to run and rest at the 660 level prior to April expiration. Just the single print of this trade cost the trader 508K and could make 11.6 million in profit. Even with AAPL at these elevated levels and volatility screaming through the roof it appears some traders are looking for even more upside. AAPL already passed its daily option volume prior to the 11:00 mark and today is again well on the way to 1.25 M contracts again. As noted in yesterday's sonar report, today AAPL again was trading at the time of this writing more than 10% of all contracts with calls outnumbering puts 1.7:1 On a side note AAPL saw something I've never seen before today. The AAPL weekly 675 calls were more than 1.10 earlier in the day. I have never seen a stock with a 90.00 strike out of the money have a 1.10 bid before with this size market cap. Amazing.

Dell computers (NASDAQ:DELL) saw some heavy put buying today. Dell saw the April 16 puts fly off the table more than 8.5K times for .14 the ask at the time. Dell has been pulled higher of late with the rest of the market but has underperformed recently and it appears some bears are stepping in. Of the 13K puts which traded today 87% were bought on the ask which is very bearish for this stock. Both DELL and competitor HP (NYSE:HPQ) have been under pressure and it appears at least a few bears think we could be due for a pullback in this name. Options activity was under average today but puts outnumbered calls 2.2:1 on the day.

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

Calls outnumbering puts:

TiVo Inc (NASDAQ:TIVO) 59:1 (13 call buyers heavy today)

Lender Processing (NYSE:LPS) 57:1

Allergan (NYSE:AGN) 132:1

Kinder Morgan (NYSE:KMR) 333:1

American Eagle (NYSE:AEO) 50:1

Toll Brothers (44:1)

Consumer Staples ETF (NYSEARCA:XLP) 43:1

Puts outnumbering calls:

MedcoHealth (NYSE:MHS) 57:1 (Large 45-40 April 1:2 put spread check OI)


Ultra Petroleum (UPL) 14:1

ConocoPhillips (NYSE:COP) 7:1

Chinacast (OTCPK:CAST) 5:1

Computer Sciences (NYSE:CSC) 4:1

KBVW Regional (NYSEARCA:KRE) 25:1 (Overall looks bullish)

Volatility Explosion

Overseas Shipholding (NYSE:OSG) saw IV scream to the upside today in the options market after the stock soared more than 5%. OSG is a name which typically doesn't see a lot of option activity but today they were moving. Calls and puts were being bought like mad causing IV to creep higher up 10% relative to yesterday. Overall the action doesn't dictate direction but sure does dictate implied movement which has increased 20 volatility points in since yesterday. Puts outnumbered calls in this name 1.5:1 today on heavy volume but remember both calls and puts appear to be bought today.

Volatility Implosion

Guess Ord (NYSE:GES) saw a huge drop of more than 10% after announcing terrible results last night. The implied volatility also came out more than 42% relative to yesterday's close after put protection was sold. Heavy buying in the 38 and 39 calls yesterday indicated bulls were looking for a beat and a raise in guidance and they were slapped down hard. The calls which traded for .50+ on the 38 line and .25+ on the 39 line are now worthless and bears are hitting this one hard. I did a double ratio spread off of this one as I mentioned in the sonar yesterday where I bought the 34 puts and 38 calls and sold 2x of the 33 puts and 39 calls to finance it for a credit. This position is basically even here for me so I will look to exit tomorrow prior to expiration. Today options signaled bulls stepping in buying calls 45% of the time on the ask where puts were sold 34% of the time and bought 32% of the time. Options activity was 6x average daily volume today.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


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

I am short: PBI, DB, AAPL, LYV, BSFT, YHOO

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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