VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment

First and foremost I would like to thank all my readers for making me the No. 1 contributor regarding options on Seeking Alpha. Wednesday S&P futures were falling after a Spanish bond auction caused renewed fears of the fiscal health of Italy and Spain. The markets have a lot to prove here with the monster move in the first quarter of 2012 to follow up with good earnings set to kick off. S&P futures yesterday moved only 5 handles where today futures had traded in a 13 handle range. With both ISM and ADP Non-Farm Payroll numbers coming in lower than forecast the markets were primed to take some profits. Futures traded down to the 1384 level before some buyers stepped in.

The spot CBOE Volatility Index (VIX) moved higher after a rush for S&P cash SPX puts came roaring in early. The volatility ETF (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY) picked up significant ground after VIX futures traded up as well throughout most of the day just to pare the gains as again traders came in selling down futures and selling calls and buying puts. VIX futures are below.


April VIX futures 17.20

May VIX futures 19.25

June VIX futures 20.83


April VIX futures 17.80

May VIX futures 19.65

June VIX futures 21.20

Following up on yesterday's sonar report regarding the action on treasury ETFs (TLT) and for 2x short (TBT). The move out of treasuries signals a potential for dollar strength which would be good for the dollar ETF (UUP) and very negative for the gold ETF (GLD). I am looking to short GLD and continue to short treasuries by adding to my TBT position. The gold trade however could turn on a dime and I will look to cover around 155 on GLD if the short goes through.

Options Paper

Because I just refuse to write about how Apple (AAPL) dominates the option plays today we will check out another favorite stock of traders. Amazon (AMZN) today saw heavy call selling combined with overall heavy put buying in the name. Although just around average option volume the breath of the options was very negative. Today 47% of the calls traded were sold on the bid and 46% of the puts were bought on the ask. This would signal an outflow of call premium and inflows into put premium. This typically suggests at least a short bearish lean in terms of options but without the volume to back it up it is a hard short here.

GoldCorp (GG) is a name which has continued to hit new lower highs and lows of late. Today however it appears someone is bottom fishing in this name as the July 44-50 call spread went off some 4K times today. The spread is betting on a rebound in GG shares between now and July expiration. The call spread is $6 wide and appears the spread was bought for around ~1.50. This would be a 4x bullish play on a rebound in GG shares. I'm not a huge fan of this trade as I've been burned bottom fishing before and my bearish stance on gold but is interesting nonetheless.

Popular ETFs and equity names with bullish/bearish paper:

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

Jack in the Box (JACK) 96% (Large Sept 25 call buyer)

Cablevision (CVC) 92%


Arch Coal (ACI) 75%

RadioShack (RSH) 64% (Long time since this got any bullish paper)

Weatherford (WFT) 62%

Bank of America (BAC) 33%

Research in Motion (RIMM) 31%

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

Idenix Pharma (IDIX) 96%

VIVUS (VVUS) 62% (Large buyer of calls as well)

BHP Biliton (BHP) 51%

Juniper Networks (JNPR) 50%

CBS Corp (CBS) 46%

Ford Motor (F) 42%

Corning (GLW) 38% (My long is killing me)

Treasury ETF 34% (No surprise here)

Volatility Explosion

Groupon (GRPN) has seen a massive price move of late. Today options continued to get more expensive as people bet on both the long and short side. Just a couple days after Goldman Sachs (GS) upgraded the price target to near 30.00 the stock fell off a cliff after accounting issues arose. GRPN today saw straddle buyers step in buying the April 15 straddle 1K times for 1.85. This helped to drive IV up when you combine it with the price action of late. The straddle trade would be greatly profitable with either a continued drop in GRPN.

Volatility Implosion

Sears Holdings (SHLD) is no stranger to the sonar report and today saw some IV come out of the option pricing. Today on the gap down some who were holding puts took the protection off selling at the bid more than 33% of the time. Overall options in this name were below average as of the writing of this report. However, it is important to note both calls and puts were being overall sold across the board on this name which was confirmed by negative net premiums and the decline in implied volatility. Overall puts barely outnumbered calls in today's trading.

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, BBBY.

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.