VIX - Options Volatility Sonar: Friday Recap

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 |  Includes: AAPL, BAC, BBRY, BTUUQ, BYD, CI, CMI, EUO, FXI, GFI, JAGGF, KBH, KGC, KSS, LUK, LYV, PBR, RAX, SQNM, SU, TVIX, UVXY, VIAV, VVUS, VXX
by: Erick McKitterick

VIX - Market Sentiment

So the final day of the quarter is here and gone and the market has now officially closed the best Q1 in more than 15 years. Friday S&P futures moved higher as quarter end window dressing pushed equities again higher. S&P futures bounced hard yesterday around the 1385 level and now trade just over 1400 going into the close. The move higher today was fueled by positive personal spending but was somewhat offset by personal income weaker than expected.

The spot CBOE Volatility Index (VIX) again moved higher but the real story is the contango which continues to weigh on volatility ETFs (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY). Again front month futures continue to sell off more than back month which continues to cause negative roll on flat to up days in the market. Futures pricing is listed below.

Yesterday

April VIX futures 17.08

May VIX futures 19.53

June VIX futures 21.28

Today

April VIX futures 16.90

May VIX futures 19.18

June VIX futures 20.95

Options Paper

Going into the final hour the market had barely traded 12M contracts continuing the light option theme. Apple (AAPL) option paper continued to show weakness in the name as upside call selling and put buying was evident through net premiums. Much of this could have been longs taking profits going into quarter end. This is interesting as AAPL today was pulled right to the 600 level which just happened to be the weekly max pain in this name for those who were long option premium. This was perfectly telegraphed after a large weekly 600 straddle seller came in today selling the 600 straddle with just a few hours left. AAPL options traded more than 1M contracts today which accounts for more than 7% of all options traded. Option activity was more than 1.5x average daily volume and today calls outnumbered puts 1.3:1.

Casino operator Boyd (BYD) has been holding key support levels for quite some time and today a few bulls now are stepping in believing it could move higher. Today more than 3K calls traded in a name where only 421 contracts on average go off. This large move is more than 8x the average daily volume on the call side with 86% bought on the offer. The May 8 calls were bought heavily today chasing higher and paying up to .60. This activity was confirmed with positive net premiums on the call side. Options volatility in this name also climbed more than 8% relative to yesterday so it appears bulls could ride this higher.

Rackspace (RAX) has been a name pushing higher for what seems forever and today was no different. More than 7.3K calls traded today with heavy buying pressure early. Options volatility confirms heavy buying pressure in the first hour of trading today as the June 65 calls went from a low of 1.70 trading up to 1.90-plus throughout the day. Option activity was almost 3x average daily volume in this name and calls outnumbered puts 28:1.

Popular ETFs and equity names with bullish/bearish paper:

Bullish option flows/out of the money calls bought on ask:

Petroleo Brasilerio (PBR) 80%

Short Euro ETF (EUO) 77% ( I like this trade I may re-short FXE as proxy)

Jaguar Mining (JAG) 74%

Kohl's (KSS) 49%

Suncor Energy (SU) 43%

Sequenom (SQNM) 38%

VIVUS (VVUS) 37% (Upside call buying all week)

Peabody Energy (BTU) 35%

Kinross Gold (KGC) 31%

Bearish option flows/out of the money puts bought on ask:

JDS Uniphase (JDSU) 85%

Jefferies (JEF) 75%

Live Nation (LYV) 74%

Cummings (CMI) 62%

CIGNA (CI) 53%

KB Home (KBH) 42%

Bank of America (BAC) 34%

China ETF (FXI) 28%

Speculative Play Friday

So last week we went long on Gold Fields (GFI) to follow up our short Research In Motion (RIMM). The RIMM short was great over the past two weeks for those who took profits into the earnings call last night. GFI on the other hand is very flat and I did exit the trade with a slight loss. This week I'm looking at another long this time to Veecro (VCRO), a LED equipment maker. This name is very heavily shorted and is hated by many traders. Today the bulls stepped in buying the May 28 calls for 2.50 on heavy volume for this name. This was definite buying pressure as IV continued to rise on this name. Options were more than 2x average daily volume with 8:1 calls outnumbering puts. I will look to get into this name on additional pullbacks at these levels.

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, GLW, KGC

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

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.