VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

So after a long weekend, Monday S&P futures were down sharply in response to last week's terrible employment number. The seasonality of the jobs number really came into play when the estimate of new jobs added of 207K was missed by almost 90K. Although the reported jobs number of 120K which was a bad number, revisions to last month were revised higher to shed at least a little light on a dark news day. Again this brings us back to today. Europe markets are closed across the board so today we cannot blame Europe for our down day.

The spot CBOE Volatility Index (VIX) moved sharply higher today after a rush for S&P cash SPX puts came roaring in early. Volatility ETF (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY) picked hard until some volatility sellers stepped back in curbing the uptick. This was in direct relation to VIX futures so again it appears as if these instruments continue to move somewhat in lockstep with VIX futures but the divergence remains. Again as stated before the Ultrashort S&P (SDS) calls continue to be better as a hedge vs VXX as the SDS weekly calls were up 60% vs VXX up 40%. VIX futures are below.


April VIX futures 18.43

May VIX futures 20.40

June VIX futures 21.65


April VIX futures 19.55

May VIX futures 21.40

June VIX futures 22.63

Today treasuries were off to the races as investors went for cover after the recent pullback. Treasury ETFs (TLT) and 2x short (TBT) showed the flight to safety today. The interesting part was the VIX pits had sellers of volatility until the last hour when some block trades of puts were sold and calls bought.

Options Paper

Bank of America (BAC) saw some massive volume in the weekly 9 calls. Today more than 78K of the weekly 9 calls traded. A large block of the 9 calls were bought early on betting on a short term pop in BAC between now and Friday expiration. The majority of the flows today were bullish with 54% of the puts being sold on the bid and 60% of the calls being bought on the ask. These percentages were flipped just last Thursday as traders positioned for the 3.2% correction in today's trading. Keep an eye on the weekly 9 open interest tomorrow as these could very well make a run higher if open interest moves from the current 1.8K level. I 100% expect a big change in open interest in this strike. Net premiums showed more than a 2:1 ratio of call inflows to put inflows so it appears option players are looking for this to move.

Popular ETFs and equity names with bullish/bearish paper:

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

Synta Pharma (SNTA) 97%

Leap Wireless (LEAP) 89%

Rite Aid (RAD) 83%

Titanium Metals (TIE) 81%

American Eagle (AEO) 77%

Advanced Micro Devices (AMD) 74%

Terex (TEX) 64% (Large May 25's and April 24's both going off)

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

Hercules Offshore (HERO) 97%

Mexico ETF (EWW) 89%

Urban Outfitters (URBN) 88%

EMC Corp (EMC) 72%

Dendreon (DNDN) 61%

Nokia (NOK) 55%

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long APC, TBT, KERX, MBI, GLW, KGC.

I am short: PBI, AAPL, LYV, YHOO.

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.