VIX - Options Volatility Sonar: Monday Recap - Netflix Earnings Edition

| About: Netflix, Inc. (NFLX)

VIX - Market Sentiment:

Monday S&P futures saw a sharp 13 point cut in the futures after flash PMI numbers out of Europe and weak China data was weighing heavily on the markets. S&P futures moved top to bottom more than 15 points moving into the opening bell which is the 4th widest move all year amazing as it sounds. This week we have a few numbers on tap such as New Home Sales, Consumer Confidence, and a FOMC statement all before Wednesday. Recent price action could easily see S&P cash test the 1340 level so keep your seat belts fastened.

As one would expect the spot CBOE Volatility Index (VIX) typically jumped at the open as SPX put bids came pouring in spiking volatility. Front month futures moved heavily to the upside initially without any sellers coming into the markets. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) benefited from this greatly initially pushing higher. VIX futures are below.


May VIX futures 19.98

June VIX futures 22.00

July VIX futures 23.28


May VIX futures 20.75

June VIX futures 22.50

July VIX futures 23.83

A flight to safety was seen early as confirmed by treasury ETF's (NYSEARCA:TLT) and 2x short (NYSEARCA:TBT). Large put buying pressure was seen early in index funds S&P ETF (NYSEARCA:SPY), NASDAQ ETF (NASDAQ:QQQ), and Russell (NYSEARCA:IWM). This was somewhat balanced out with some speculative call buying early as some continue to attempt to buy the dips here. Even tech giant Apple (NASDAQ:AAPL) saw a break almost touching the 50 dma which caused some added turbulence in the Q's.

Options Paper:

Netflix (NASDAQ:NFLX) reports after market close today and the bears and bulls have been fighting to the death on this one. Last week alone 2 large May bullish call spreads went off with the 115-130 call spread bought more than 15K times. This 3.4M dollar bet I followed and closed last week as NFLX felt "toppy" around 109 heading into earnings. I closed the trade fully just after a large weekly bear put spread went off for more than 6M of premium. This time the bears bought the 105-85 put spread 10K times showing what appears to be an outright speculative bet NFLX falls after earnings. Almost 7.5K of these contracts were taken off just after 9:42 today as this trade took profits and appears to be letting some ride here. Interesting here the weekly straddle is pricing in a 15.00 move post earnings between now and Friday. Considering the heavy short interest in this name may seem a little low at this point with estimates for earnings have NFLX losing .27 per share in earnings. This is not as important to me as the whisper number expecting just a loss of .12 where if NFLX does not beat numbers handily could see serious downside pressure. I sold upside calls to buy put spreads in this name and thus am short going into earnings.

In a fairly weak tape it was interesting Hasbro (NASDAQ:HAS) saw some bulls step in buying the June 35 calls. This 2.3K options had no previous open interest. This name is very thin when it comes to options only trading just over 1K total a day and today saw calls more than 7K times alone. Inflows to this name appears to be positions rolling out of May and into June so take this with a grain of salt but at least one bull is not stepping down. Overall calls outnumbered puts more than 4:1 in today's trading session.

Popular ETF's and equity names with bullish / bearish paper:

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


Companhia de Bebid (ABV) 74%

American Eagle (NYSE:AEO) 73%


Credit Suisse (NYSE:CS) 67%

Leap Wireless (LEAP) 58%

Advanced Micro Devices (NYSE:AMD) 54%

Monster Worldwide (NYSE:MWW) 51% (Speculative buyout bulls returning)

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

Liberty Media (LINTA) 88%

Allstate (NYSE:ALL) 77%

American International (NYSE:AIG) 65%

Industrial ETF (NYSEARCA:XLI) 63% (Against open interest could be closing transaction)

Starwood Hotels (HOT) 58%

Transocean (NYSE:RIG) 55%

Huntington Bankcorp (NASDAQ:HBAN) 52%

U. S. Bankcorp (NYSE:USB) 49% (Odd as regional banks have not really seen bearish paper)

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long APC, TBT, KERX, GLW, KGC. I am short: PBI, SFD, YHOO, NFLX. I own strangles.

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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