VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday S&P futures continued to hold the accelerated uptrend as futures traded flat to up. The futures barely yawned today, only moving 6 handles top to bottom. This was interesting as Asian and European markets were down pretty much across the board.

The spot CBOE Volatility Index (.VIX) meandered down throughout the day as VIX futures retreated. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) all traded down as one would expect today. However, again TVIX was trading at more than twice its NAV price and thus it appears margin calls continue to hit holders of this name as it continues to get slaughtered. Credit Suisse (NYSE:CS) announced today they would begin creating shares on a "limited basis" as investors in this name continue to exit them as it diverges from the VIX futures pricing. VIX Futures are listed below.


April VIX futures 19.00

May VIX futures 21.70

June VIX futures 23.23


April VIX futures 17.28

May VIX futures 20.35

June VIX futures 22.30

Options Paper:

Technology sector ETF (NYSEARCA:XLK) saw a massive number of puts trade today. The XLK saw 2 large 29-28-27 put flys go off today for a total of 27.5K-53K-27.5K. These puts are more than likely a proxy for shorting Apple (NASDAQ:AAPL) and other high flyers in the technology sector. This is not a large bet as it only cost .09 to put the trade on but would gain more than 10 fold if XLK dropped to the 28 level between now and April expiration. Puts outnumbered calls 17:1 on the day with 47% of the puts bought at the ask.

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

Calls outnumbering Puts:

Ariba (NASDAQ:ARBA) 211:1

Rockwood (NYSE:ROC) 194:1

Health Net (NYSE:HNT) 205:1

Rite Aid (NYSE:RAD) 172:1

Computer Sciences (CSC40:1

Elan Corp (NYSE:ELN) 28:1

Gap Inc. (NYSE:GPS) 26:1

Puts outnumbering Calls:

Thoratec (NASDAQ:THOR) 7:1

International Paper (NYSE:IP) 7:1


China Life Insurance (NYSE:LFC) 7:1

Volatility Explosion:

KIT Digital (OTC:KITD) saw IV explode to the upside after dropping more than 23% from yesterday's price. The options in this are extremely bearish with calls being sold and puts being bought. The April 7.5 and May 7.5 strike puts were very active today with traders buying both and selling the May 7.5 calls. This name only trades 1.2K options a day and today has seen more than 9x average daily volume. Puts were bought on the ask 55% of the time but were evenly traded with calls.

Volatility Implosion:

Lions Gate (LGF) has seen IV scream to the upside and was at a new 52 week high just yesterday as call and put buyers buying options left and right. Today, however, it appears some option holders are looking to give up some option premium here. The net premiums for calls and puts were both negative suggesting outflows of both puts and calls as people continue to position going into the "Hunger Games" release weekend. Overall calls today did outnumber puts 3.2:1 but it is important to note both appear to have overall been sold. Option volume was more than 9x average daily volume.

Speculative Play Friday:

So anyone who jumped on the speculative play last week to short Research in Motion (RIMM) caught a double on the weekly puts. This week's speculative play is Gold Fields (NYSE:GFI). Call activity has been building in this name and today more than 4K April 15 calls traded. This name, just like former winner Kinross (NYSE:KGC), has seen better days and following the bullish options here makes since. GFI bounced yesterday on at the 13.60 level and options today aver very bullish with 70% of puts sold and 78% of calls bought. Calls outnumbered puts more than 2.5:1 on this name on almost 3x average daily volume.

As always, happy trading and stay hedged. Remember, equity insurance always looks expensive until you need it!

Disclosure: I am long APC, TBT, FAZ, KERX, MBI, I am short: PBI, DB, AAPL, LYV, YHOO I own strangles:

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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