VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment

Tuesday, S&P futures were trading lower more than .5% after world markets took a breather overnight. Just one day after Apple (NASDAQ:AAPL) announced a dividend and $10B buyback program the markets are again tracking AAPL pricing once again. If you overlay AAPL on top of the S&P they trade almost in lockstep to each other.

The spot CBOE Volatility Index (VIX) was mostly flat today along with volatility ETFs ((NYSEARCA:VXX)) and 2x volatility ((NASDAQ:TVIX)). VXX tomorrow will be composed of 100% April futures so it could move big up or down. The March open interest of VIX contracts are going to try their hardest to have a March settlement toward the 17 line in order to save cash for those who sold the 100K+ 17 strike puts. Additionally the 100K+ strike 20 puts also will probably draw March settlement higher at tomorrow's open. VIX futures shown below.


March VIX futures 15.60

April VIX futures 19.93

May VIX futures 22.73


March VIX futures 16.00

April VIX futures 19.30

May VIX futures 22.08

Options Paper

Regency Energy (NYSE:RGP) traded down heavy along with energy stocks across the board. Bulls stepped in big today after a sale of the May 22.5 puts went off for .20 and at the same time a purchase of May 25.00 calls for .40. This risk reversal went off in a single block of 5K for each strike allowing the trader to get long RGP at just 25.20. This is an extremely bullish trade in a name which typically does not get my option paper and is not liquid whatsoever. Average volume is just 338 contracts per day and today traded more than 11K just after the noon hour. This is more than 33x average daily volume as volatility continues to remain strong in this name. Remember the liquidity of this name is very thin so those looking to get in need to be nimble. Additionally those who would just go long the equity need to remember this does have special tax treatment.

Chico's (NYSE:CHS) has been slowly gaining call volume of late and today was no different. April 16 calls were extremely active today trading around 6K going into the noon hour. More than 70% of those calls were bought on the ask today showing yet even more bullishness. Calls outnumbered puts more than 35:1 as of the writing of this article with volume more than 5x average.

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

Calls outnumbering puts:

Energy Transfer (NYSE:ETE) 106:1
Giant Interactive (NYSE:GA) 105:1
Barnes & Noble (NYSE:BKS) 141:1
Gap Inc. (NYSE:GPS) 26:1
Telefonica (NYSE:TEF) 19:1
El Paso (EP) 17:1 (Calls have been building in this name)
Huntsman (NYSE:HUN) 14:1

Puts outnumbering calls:

Live Nation (NYSE:LYV) 2081:1 (July 7.5 puts bought)
Owens Corning (NYSE:OC) 10:1
Time Warner (NYSE:TWX) 6:1
Industrial ETF (NYSEARCA:XLI) 7:1
Edwards Lifescience (NYSE:EW) 8:1
McKesson Corp (NYSE:MCK) 11:1
Sunpower (NASDAQ:SPWR) 20:1
Fasstenal Co. (NASDAQ:FAST) 4:1
Emerging Markets ETF (NYSEARCA:EEM) 3:1 (This has been painful for me)

Volatility Explosion

Netflix (NASDAQ:NFLX) is a name which has not been on the sonar of late but IV has been creeping higher and higher as options keep getting purchased close or at the ask. Interesting today was a good size trader today came in today selling the weekly 105 put and 120 call while buying the 115 call. This trade would profit greatly if NFLX ran back toward the 120 level prior to Friday expiration. Volatility has been creeping up since NFLX found some support around 105 as people continue to bet on the success or failure of NFLX. Calls outnumbered puts almost 2:1 with net premiums showing both calls and puts bought.

Volatility Implosion

Tiffany (NYSE:TIF) saw an IV just fall out of the sky after reporting a monster quarter. TIF shot up more than 6% after the report and options activity was extremely heavy trading 3x average daily volume before 10:30. Today puts were being sold on the bid and rolled out and up for those who were looking to keep protection. The calls were also flying of the shelves being bought on the ask more than 37% as of the time of this writing. Calls and puts were close on both accounts but the most active strike today was the selling of the 67.5 puts and buying of the 75 puts. Open interest on the puts is sky high compared to the average open interest so keep an eye to see if this OI drops to signal the worries to the downside being lessened.

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, 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.