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VIX - Market Sentiment

On Tuesday the S&P recovered nicely after getting slapped down hard yesterday. The indicators were all showing oversold and some shorts appear to have been covering as S&P pushed initially before tailing off toward the close. Although the consumer confidence number today was somewhat lower than expected the markets appear to be shrugging this off in the short term. Tomorrow the FOMC is center stage so be ready for a potential violent day in the treasury ETFs (TLT) and 2x short (TBT).

The spot CBOE Volatility Index (VIX) moved sharply lower today after yesterday's large move higher. Volatility ETF (VXX), 2x ETF (TVIX) and alternative 2x ETF (UVXY) dropped as one would expect as front month VIX futures were slapped hard. VIX futures are below.

Yesterday

May VIX futures 21.125

June VIX futures 22.70

July VIX futures 23.80

Today

May VIX futures 20.25

June VIX futures 22.15

July VIX futures 23.55

Options Paper

Today everyone is 100% focused on tech giant Apple (AAPL) which releases earnings after market close today. The interesting move today was the beat down the weekly straddle took, moving from an implied move of 45.00 to just over 35.00 in just over four hours. This was perfectly forecast as volatility actually continued as people sold down OTM calls and puts across the board trying to take advantage of the increased volatility. AAPL saw more than 8 million in call premium and 1.4 million in put premium coming out of options today. This does not give a specific direction as no one is buying hand over fist as it relates to direction but at this point I am leaning short. Today I sold the 500-620 strangle and used the proceeds to buy the 535-500 weekly put spread trying to play for the potential shortfall reported in iPhone activations reported by both Verizon (VZ) and AT&T (T). Calls outnumbered puts more than 1.6:1 on more than 1.13 million contracts changing hands.

Popular ETFs and equity names with bullish/bearish paper:

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

Rigel Pharma (RIGL) 94%

Medtronic (MDT) 71%

Illumina (ILMN) 69%

OCZ Tech (OCZ) 69% (Good size call buying looks very bullish)

Nabors Industries (NBR) 60%

Alpha Natural (ANR) 50%

Rosetta Resources (ROSE) 49%

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

Valassis Communication (VCI) 99% (more than 3.5K of 3.6K were bought on the ask)

Murphy Oil (MUR) 94%

AnnTaylor (ANN) 77%

Amarin (AMRN) 72%

Alcoa (AA) 58% (Looks like some are still not believing the turnaround story in this name)

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, AAPL, YHOO, NFLX, BIDU

I am short strangles: AAPL, BIDU

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.

Source: VIX - Options Volatility Sonar: Tuesday Recap And Apple Earnings