VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday, S&P futures were higher yet again after the Non-Farm Payroll numbers were released. The released number of 171K new jobs was better than the 123K expected by analysts. This news helped propel the S&P futures to a high of 1431 before selling off and heading back to the 1410 level at the end of the day. I believe the action today is directly related a large SPX resistance around the 1432 and 1440 levels. The SPX was rejected at the first level and never held any type of constructive bull move. The NYMO Oscillator closed today with a reading of -19.00.

Thursday night had many positive earnings releases led out of the gate by Starbucks (NASDAQ:SBUX). SBUX reported record sales and earnings, then proceeded to raise guidance and boost the dividend. Other positive earnings, in addition to SBUX, were released by travel stocks Priceline (NASDAQ:PCLN) and TripAdvisor (NASDAQ:TRIP). Both ripped higher after beating analysts' expectations, sending their stock prices soaring. As noted in my daily recap on Wednesday, these stocks were seeing large call spread buyers betting to the upside. I was almost scared out of these positions Thursday when a massive 16K put block was bought on TRIP noted on the sonar. Today, we booked some serious gains in these trades after the positive earnings releases. The major drivers behind these moves were strong ad sales for TRIP. Whereas, PCLN saw better than expected results from Europe. Other positive news came out of Alpha Natural (ANR) after the EPS loss was narrower than expected.

The spot CBOE Volatility Index (VIX) continued an initial move lower as hedge funds continued to drop bids for SPX puts early in the morning. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) traded down initially following futures down yet again heading into the noon hour. However, volatility began to creep back into the market as the VIX returned to the highs heading into the final hour of trading. It is important to understand realized volatility has continued to be between 9-12%, which means the front month VIX futures are still trading at a 50% premium to realized volatility. Big trades on the VIX today were again large short call rolls rolling from both November and December to February and March of next year. VIX futures are below.


November VIX futures 17.23

December VIX futures 17.98

January VIX futures 19.20


November VIX futures 17.53

December VIX futures 18.40

January VIX futures 19.80

Options Paper:

Some bears stepped in today eating up puts on semiconductor name ON Semi (ONNN). Today, the December 6 puts went off for .23 to .25 more than 3,000 times. Although not a large bet, it appears someone believes ONNN will fail to break through the 50 dma yet again to push lower. Puts outnumbered calls more than 27:1 on 4x average daily volume. The price dropped too quickly after these puts went off so I couldn't get a fill. Anyone looking to follow this should be careful as this name typically only trades 950 contracts a day, so liquidity could be an issue.

Apple (NASDAQ:AAPL) is not a name which sees a ton of "Unusual" options activity. This is the case because AAPL sees more than 800K of options every day. Therefore, "Unusual" options would take a massive premium to be put into this category. Today, however, was a little different in terms of options premium sentiment. First the technology sector as a whole saw massive put selling and call selling across the board. This is highlighted by the AAPL divergence from this trend as more than 12M net premium of calls were sold and 3.9M of net premium of puts were bought.

In a week where I think I heard the term "200 day moving average" more on CNBC than I've heard in the last 10 years, I think it is safe to say everyone knows AAPL is near and actually closed below the 200 dma for the first time since November of 2011. It is important to note AAPL spent a total of one day below this level before rising more than 40%. This is important as typically this is the point where macro investors step in. My fear here is the outflows from funds over the last 14 weeks has me concerned to the amount of capital which is available to buy here at the macro level. When you combine poor news with bearish options activity and negative fund outflows, this could spell trouble for AAPL in the coming weeks. I closed an AAPL 650-600-550 put fly I bought a month ago for a decent gain, but I also exited my call fly as well as I'm now going to let AAPL show me direction.

It is important to point out as well the calls being sold and puts being bought could just be hedges against existing long positions. Regardless an investor willing to pick a direction either short or long right here could very easily make or lose a ton of money.

Popular ETFs and equity names with bullish / bearish paper:

Bullish Option Flows

Guess? Inc. (NYSE:GES) 75% of OTM calls bought on ask

Plains Exploration (NYSE:PXP) 2.2K bought on ask

Dollar Thrifty (NYSE:DTG) saw cheap shot buyer some 12K times

Bearish Option Flows

Array BioPharma (NASDAQ:ARRY) 2.5 December puts bought 4.5K times possible closing transaction check OI

BP Plc (NYSE:BP) 54% of puts bought on the ask

Yahoo (NASDAQ:YHOO) 6K OTM puts bought on the ask 55% of total OTM puts

Speculative Play Friday:

So a nice speculative play here is a setup by next week's Presidential Election. As most investors know, gold and silver, including their ETFs GLD and SLV have been ripping since the announcement of QE3. The part which is very interesting is, overlaying the Presidential poll numbers, you can see big correlation between the poll numbers and the price of gold. My play here is simple and is doing nothing more than betting on the outcome of the election.

For example, if you believe President Obama will win, the Gold Miners ETF (NYSEARCA:GDX) or Junior Miners ETF (NYSEARCA:GDXJ) will more than likely pop after the election. On the other hand, if you believe Mitt Romney will win, then more than likely the price of gold could fall. Thus my trade is simple: buy call 1:2 spreads on the GDX and GDXJ if you believe President Obama will win, and buy 1:2 put spreads if you believe Mitt Romney will win. I personally like Johnson, but I have a feeling he won't win. Have a great weekend

As always. happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!


I am long: AGNC, APC, CAG, KERX, SLW

I am short: FE, FXE, FXY, SPY

Trades today: Closed Positions in LNKD, TRIP, TYC, UNH, WMB

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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.