VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

Monday S&P futures were mixed after positive price action in Europe combined with good retail sales numbers. This week has quite a few economic numbers due out, with Philly Fed and several items out of Europe as well. Thursday tentatively has an important Spanish Bond auction that could rebound the markets or continue to add weakness as high beta continues to sell off.

The spot CBOE Volatility Index (VIX) had a wild ride today moving from 18.60 to 20.40, which is a fairly wide range. Volatility ETF (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY) were trading almost point for point with the front month futures, which were almost unchanged on the day. Please remember April contracts will be have settlement on Wednesday morning so these funds are very tricky here. VIX futures are below.


  • April VIX futures 19.78
  • May VIX futures 21.00
  • June VIX futures 22.75


  • April VIX futures 19.88
  • May VIX futures 21.33
  • June VIX futures 23.03

Last week anyone who followed the treasury ETFs (TLT) and 2x short (TBT) knows the recent price strength seemed to be an oversold bounce. The VIX pits had some very heavy call buying in the back months of May and June today. Although the back month futures initially climbed, some sellers again stepped in as little to no fear continues to dominate volatility sellers. It is important to note here the moving averages continue to turn down showing some weakness as people position for a possible "Sell in May and go away".

It is very important to understand the recent downtrend in high beta stocks cannot be ignored. Options activity on the index ETFs S&P (SPY), NASDAQ (QQQ), and Russell (IWM) has turned very ugly of late. This is no more understood by those who are long Priceline (PCLN), Chipotle Mexican Grill (CMG), or even the almighty Apple (AAPL). Weakness in these names has been heavy of late and when high beta flounders typically so does the market.

Options Paper

A big bull stepped into Netflix (NFLX) today as a large buyer of 14K+ 115 - 130 May call spreads. This 3.6M+ bet is believing NFLX will re-test the highs after earnings this quarter. Although I am not a huge fan of this name the price action now that has filled the earnings gap is continuing to build support here at the 100.00 level. Therefore, I believe the risk reward of this trade makes sense here. I see 2 potential plays off of this traders move. First I like the 115-130-145 call butterfly which could be had for ~1.50 and would be a 10x investment if NFLX was 130 at May expiration. Another play here is a risk reversal where I sold 2x of the May 70x puts and 2x of the May 130 calls and used the proceeds to buy 1x of the 115 calls. This trade will profit with NFLX anywhere between 69.91 and ~145.00 at May expiration. Calls outnumbered puts more than 2:1 today with more than 3.8M of inflows into calls vs just 400K inflows into puts according to net premiums.

In contrast to both the calls and puts being bought on NFLX, Goldman Sachs (GS) today saw calls and puts being sold overall across the board. Overall options were sold across the board today as some options traders believe the volatility collapse tomorrow will be profitable. (I am one of those traders.) More than 1M worth of calls and puts were sold on the bid today with no directional tell in this name. I played 2 ways on GS today. I bought the April 120-125 1:3 call spread and I sold the 130 -105 May strangle to play a moderately bullish to neutral play on GS. Again just following the larger players in this name as the front month straddle absolutely collapsed today losing more than 20%. Calls outnumbered puts more than 1.7:1 today on 1.5x average daily volume.

Popular ETFs and equity names with bullish/bearish paper:

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

  • Time Warner (TWX) 91%
  • Eagle Materials (EXP) 88%
  • STEC Inc. (STEC) 87%
  • News Corp (NWSA) 66%
  • MBIA (MBI) 56% (I just closed my long in this name for big gain today)
  • Patriot Coal (PCX) 49%
  • Regions Financial (RF) 46%
  • KB Home (KBH) 36% (Probably a play on housing number due out this week)
  • Research in Motion (RIMM) 26% (Amazing how large calls were bough just before it ran heavy)

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

  • VeriFone (PAY) 88% (Good size put blocks)
  • Goodyear (GT) 66% (Bulls were here last week now bears)
  • Bank of America (BAC) 58%
  • Cheniere (LNG) 47%
  • Alpha Natural Resources (ANR) 43%
  • Zynga (ZNGA) 36%
  • Mattel (MAT) 36%
  • 2x Short Treasury 23%

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.



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

I am short strangles: GS

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.