VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday S&P futures climbing all morning but traded in a large range of more than 20 handles. However, this move testing the 1340 level was quickly muted as news out of Europe again weighed on markets putting even more downside pressure on equities. Again all eyes were on the FOMC and we will need to see how treasuries respond as treasury ETF (NYSEARCA:TLT) and 2x inverse (NYSEARCA:TBT) were prime to move.

The spot CBOE Volatility Index (VIX) trended lower early as the opening print was the May futures cash settlement which is highly volatile as many of my readers know. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were initially pushed lower but as now June front month futures increased so did the underlying. Although I do not like to use daily moving averages when it comes to the VIX everyone else loves to talk about it and the truth is the way the VIX and market are tracking this could get real ugly real fast. VIX futures are below.


  • May VIX futures 22.10
  • June VIX futures 23.80
  • July VIX futures 24.70


  • May VIX futures Settlement Print 21.45
  • June VIX futures 24.23
  • July VIX futures 25.15
  • August VIX futures 26.05

Options Paper:

Today paper was mixed but one was very clear on computer maker Dell (NASDAQ:DELL). Today a large put spread buyer stepped in betting on even further downside in the name. The June 15-14 put spread was bought 10K times in a single block for .27 which would gain almost 400% if Dell traded below 14 on June expiration. The single 270K block bet follows what has been very bearish paper when it comes to DELL of late. Honestly, here I believe the better short here is Hewlett Packard (NYSE:HPQ). HPQ has more than 30% of overall revenues coming out of Europe and I believe has more downside. The options in the name of DELL, however cannot be ignored as more than 300K of puts saw inflows where only 93K of call dollars were put to work. Puts outnumbered calls 3.5:1 on the day on more than 2x average daily volume.

Emerging Markets ETF (NYSEARCA:EEM) saw some heavy inflows into puts as well today. Just after noon more than 420K of puts had traded with spreads being bought all over the place. The June 36-34 put spread and 36-34-32 put fly went off in large blocks all day long. Average daily volume in this name is only 153K on a typical day when it comes to put volume so this volume is very heavy on an index name. Puts outnumbered calls more than 11:1 as of the writing of this article with more than 3.1M of positive net premium being put to work in new put contracts rolled from May to July and December.

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

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

  • Bank of America (NYSE:BAC) 71% (More than 215K OTM calls bought)
  • Patriot Coal (PCX) 66% (Coals still punished)
  • ZAGG Inc. (NASDAQ:ZAGG) 63%
  • Chesapeake Energy (NYSE:CHK) 62% (More than likely Speculators)
  • Research in Motion (RIMM) 53%
  • Cheesecake Factory (NASDAQ:CAKE) 55% (Large block buyers for possible earnings play)

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

  • Valeant Pharma (NYSE:VRX) 97% (Crazy puts being bought in this name I may look to join)
  • Tyco International (NYSE:TYC) 91% (2.3K OTM puts bought)
  • MEMC Electronic (WFR) 89%
  • Vodafone (NASDAQ:VOD) 76%
  • Hewlett-Packard 42% (11K of 27K puts bought OTM on the offer I plan to short HPQ into earnings)

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long APC, KERX, GLW, KGC. I am short: PBI, CMG, YHOO, JCP.

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.