VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment

Tuesday S&P futures were drifting lower as the market again digested the gains from Monday. S&P futures traded 7 handles top to bottom today, weakening into the open near the 1413 level. The GFK German climate number came in below forecast and worries from the Consumer Confidence number were slightly weighing on futures. The 10 day moving average for the S&P ETF (NYSEARCA:SPY) now sits at 140.32 as we continue our push to the 1425 level on the S&P.

The spot CBOE Volatility Index (VIX) rose slightly, moving back toward the 15 level. The Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX) and alternative 2x ETF (NYSEARCA:UVXY) in the pre-market continued to be bid up, suggesting a pop in front month VIX futures. This was confirmed with front month VIX futures rising and back month falling in early trading. Futures pricing is listed below.


April VIX futures 15.85

May VIX futures 18.70

June VIX futures 20.73


April VIX futures 17.43

May VIX futures 19.48

June VIX futures 21.35

The day ended in an explosive move to the upside for front month VIX futures moving up more than 10% in comparison to back month futures only moving 5%. This also would explain the moves in VXX, and TVIX today, both trading as one would expect with such a strong move all things considered. Typically this happens when the SPX would have traded down at least a full 1% so to only have closed down .28% is strange considering where realized volatility stands. Again it appears those who heed the warnings of treasury ETFs (NYSEARCA:TLT) and 2x (NYSEARCA:TBT) who were saying sell earlier in the day could have made substantial gains.

Options Paper

Kinross Gold (NYSE:KGC) again continues to see strong bullish paper in the face of terrible price action. Today just before 10 a large number of January 10 call buyers stepped in buying every single contract they could find. The bids began to climb from the 1.48 paying ask price, paying up all the way to 1.70 before the lots were finished. This single strike traded more than 24K times today with open interest of just 5.7K. Keep an eye on open interest to see just how many of these contracts were opened as the bullishness in gold miners continues. Net premiums showed positive inflows into both calls and puts today with calls being bought 57% of the time and puts bought 60% of the time on the ask. In all option activity was more than 3.5x average daily volume with calls outnumbering puts 2.5:1.

Micron (NASDAQ:MU) saw a large buyer of the April 10 calls again lit up for the second day in a row, buying the April 10 calls in full force, trading another 98K contracts today alone. Keep an eye on open interest as this strike alone has moved from 20K open interest to 110K and now should explode higher yet again as people continue to speculate on MU moving to the upside. Option volume was again more than 3x average with calls dominating the action outpacing puts 9:1. However, don't count out the bears here 63% of all puts bought today were on the ask with good size blocks across multiple strikes and months. MU finished the day up 3.9%.

Again tech giant Apple (NASDAQ:AAPL) continues to dominate the option markets trading more than 6% of all options traded today alone. Today the action was simple. It was short term call buyers showing up and large block put buyers also showing up. Inflows into puts and calls were very dominant today as people continue to pile into AAPL options. The July 605 puts were bought in a single block of 1K today at 37.40 which was .05 below the ask at the time. However, again call inflows were more than 3x put inflows as calls outnumbered puts 1.5:1 on more than average volume.

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

Calls outnumbering puts:

Annaly (NYSE:NLY) 159:1 (large dividend steal here no play or directional tell)

Molson Coors (NYSE:TAP) 57:1

Barnes and Knoble (NYSE:BKS) 49:1

TiVo (NASDAQ:TIVO) 38:1 (Calls continue to build both bought and sold)

Urban Outfitters (NASDAQ:URBN) 25:1

Puts outnumbering calls:

Industrial ETF (NYSEARCA:XLI) 24:1

Navistar (NYSE:NAV) 19:1

Avis Budget (NASDAQ:CAR) 16:1

Pandora (NYSE:P) 11:1

Paccar (NASDAQ:PCAR) 10:1

Volatility Explosion

Molycorp (MCP) has been a huge winner for both long and shorts who time it right. Today IV was moving and moving hard to the upside, climbing 18% relative to yesterday. Both put and call premium shot to the upside today after shares rose more than 8% moving into the noon hour. Inflows to both calls and puts were evident as puts were bought 37% of the time and calls bought 44% of the time. The largest inflows today were pretty much split between both calls and puts so no directional tell here. This is somewhat to be expected as MCP did hit a 52 week low yesterday in terms of IV so some straddle buyers stepped in yesterday and made some serious cash today. Options volume was more than 2x average daily volume with calls outnumbering puts more than 3:1.

Volatility Implosion

Tesla Motors (NASDAQ:TSLA) has been on a tear since the January 13th crash of the stock price, sending it down more than 20% in less than 20 minutes. Now TSLA is up more than 75% from the January low and today IV continued to leak out of option premiums. TSLA options were very active on a slow day trading more than average daily volume before the 10 mark. TSLA did somewhat come off the highs around 1:00 EST but option activity remained strong. Option volume was 2x average daily volume with calls outpacing puts 1.5:1.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.




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.