VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

Q1 of 2012 has come and gone and after the best performance since 1997 the markets are ripping higher. Today S&P futures were down heading into the open with concerns about Europe and China weighing on the futures. Poor ISM pricing numbers were again shrugged off after again the markets continued to move higher yet again.

The spot CBOE Volatility Index (VIX) had an interesting move today moving higher on a day where you would expect for a move lower. Volatility ETF (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY) benefited from front month volatility moving slightly higher as back month. For those looking to hedge ultrashort ETF (SDS) calls could be a great hedge here against a market pullback. With contango continuing to dominate the VIX futures the volatility ETFs will more than likely outperform SDS calls. Futures pricing is listed below.


April VIX futures 16.90

May VIX futures 19.18

June VIX futures 20.95


April VIX futures 17.00

May VIX futures 18.85

June VIX futures 20.68

Options Paper

The markets today traded somewhat decent paper with 16.5M contracts trading hands today (2.3M of this was JPMorgan (NYSE:JPM) but more on that later). Tech giant Apple (AAPL) saw option paper reverse hard today with call inflows screaming to the upside. When you combine this with overall option paper of puts being sold AAPL looks poised to continue a charge higher. More than 740K contracts traded today in AAPL with 38% of calls being bought on the ask. Again positive net premiums continue to point to continued bullishness in AAPL. Option activity was just above average daily volume and traded 1.5 calls for every put.

I received a few messages today regarding JPMorgan Chase and the insane call volume of more than 2.3 million contracts. This paper is one very familiar to sonar readers where large institutions buy deep in the money calls and call spreads to immediately exercise the options and collect the dividend by owning the shares overnight. Again open interest is 871K at this point so these are not opening contracts or OI would fly to over 2.75 M or more tomorrow. Calls outnumbered puts almost 70:1 on the trading day with volume more than 25x average daily volume.

Popular ETFs and equity names with bullish/bearish paper:

Bullish Option Flows/Out of the Money Calls Bought On Ask:

Fortress Investment (FIG) 81%

Patriot Coal (PCX) 71%

Starwood Hotels (HOT) 68%

J.C. Penny (JCP) 52%

Intel (INTC) 39%

Archer-Daniels-Midland (ADM) 39%

Advanced Micro (AMD) 37%

Bearish Option Flows/Out of the Money Puts Bought On Ask:

Logitech (LOGI) 92%

Pan American (PAAS) 82%

Supervalu (SVU) 73%

Patriot Coal 71%

Corning (GLW) 61% (My long has been killing me on this name)

Treasury ETF (TLT) 35%

Ford (F) 32%

Alpha Natural (ANR) 30%

Volatility Explosion

Avon Products (AVP) saw a massive move higher in IV today climbing more than 46%. This came off an implied volatility 52 week low of just 22.97 set last week and now is north of 38%. Today the big players were playing the April 22 puts trading more than 5K times in two blocks. Both blocks look bought and correspond to buying pressure as bids continued to rise even as the AVP traded higher by 17%. Options activity was massive for this name trading more than 70K contracts in total when it only averages just over 5.7K. Calls did outnumber puts today but the majority were sold 35% of the time to buy the puts 41% of the time. Options defiantly were negative on this name confirmed by net deltas. Keep an eye for any type of pullback especially in the near term as these options are front month loaded.

Volatility Implosion

Biotech play Keryx Biopharmaceuticals (KERX), a name I got into some time ago, saw IV implode today after a phase 3 study failed on a new cancer drug. I have a synthetic long on this name which just was obliterated today after KERX traded down more than 65%. Interesting option activity today was the calls bought on the ask. Of the 28K calls which traded today 53% were bought on the offer which is bullish. Even though a rebound is probably coming for this name I am looking to exit my long position and reduce risk and move on from here. Calls outnumbered puts 1:5 to 1 on more than 8x average daily volume.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.



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.

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