VIX - Options Volatility Sonar: Tuesday Recap

Includes: TVIX, UVXY, VXX
by: Erick McKitterick

VIX - Market Sentiment:

Happy Election day! S&P futures were up in the pre-market as U.S. and World markets brace for a potential shift in U.S. presidential policies. Futures opened at the low of the night around 1410 before rising up to the 1417 level again holding a very tight 7 handle move. It appears the markets option activity yesterday has the markets on autopilot awaiting the outcome of the Presidential Election. Yesterday the NYMO Oscillator closed with a reading of -16.75. Remember oversold market is -80 so we still have a long way to go before we could get an "Oversold Bounce".

My article yesterday (here) highlighted some Under/Over valued stocks which could be played to the up or downside. Two of these stocks Pharmacyclics (NASDAQ:PCYC) and Zillow (NASDAQ:Z) were just destroyed after poor earnings reports not living up to analyst's expectations. Express Scripts (NASDAQ:ESRX) announced they felt 2013 views were too aggressive, which sent the stock down more than 10% in the pre-market. Unfortunately, ServiceSource (NASDAQ:SREV) didn't help this negative news after missing estimates and cutting the full year 2012 revenue outlook.

The spot CBOE Volatility Index (VIX) was mostly flat at the open and then was knocked down more than 3% after the market continued to rally back to resistance around 1425. Markets jostled for position both long and short as trading algorythims . Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) traded lower after front month futures declined across the board. As stated in yesterday's sonar report (here), long volatility ETF's gains did not hold as the negative term structure continues to put downward pressure on these stocks. The spot VIX has dropped back into contango so expect pressure to increase on these ETF's if we don't get a big selloff and soon. This outcome, however, is not very likely as a huge put buyer came into the market today buying the front month November 16 puts in bulk believing volatility will continue to collapse. Big VIX futures are below.


  • November VIX futures 17.80
  • December VIX futures 18.65
  • January VIX futures 19.95


  • November VIX futures 17.00
  • December VIX futures 17.83
  • January VIX futures 19.28

Options Paper:

One trade I wanted to highlight from yesterday's trading was one on Medivation (NASDAQ:MDVN). Yesterday, two large bullish spreads went off on the ISE market. At 10:36 the December 50-52.5 call spread was bought 2K times for a cost of 260K. Less than a min later the November 50-45 bull put spread was sold allowing the trader to collect 245K worth of premium. See graphic below.

(Click to enlarge)

Net net this trade cost the trader just 15K to put on but allows for massive leverage to the upside considering MDVN reports soon. This trade holds more than 500K in buying power so this is a rather large position believing MDVN will apparently do well after earnings. The 50-45 put spread is already in the money so someone is willing to buy at 50 and leverage on the way up. Overall options activity was more than 8x average daily volume with calls outnumbering puts more than 2:1. Check out the profit and loss graphs.

(Click to enlarge)

Paper today was crazy hot as Phillips 66 (NYSE:PSX) and Darden (NYSE:DRI) have both seen heavy call buying over the last 5 days. DRI lit up again today with 4.7K of the November 55 calls bought for .40. This allowed the buyer to take a very heavy bullish stance to the upside and only needed to shell out just under 200K for the trade. Calls outnumber puts more than 270:1 in this name and is on volume more than 9x average daily volume. Unfortunately for those who follow me and my trades on Twitter know I sold out of PSX and left more than 33% on the table. I will continue to look for options activity to re-enter the trade in the future.

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

Bullish Option Flows - OTM calls bought on offer

  • Kodiak Oil (NYSE:KOG) 89%
  • Affymetrix (NASDAQ:AFFX) 72%
  • Corning (NYSE:GLW) 68% (I've been burnt on this too many times no thank you)
  • Frontier Communication (NYSE:FTR) 2.5K OTM calls bought on offer.

Bearish Option Flows - OTM puts bought on offer

  • Clearwire (CLWR) 94% (Again large put buyers follow from yesterday)
  • Symantec (NASDAQ:SYMC) 91% 10K oTM puts bought
  • McMoran (NYSE:MMR) 67% bought on ask
  • Qualcomm (NASDAQ:QCOM) 8K puts bought on offer as bears continue to step in here
  • Alpha Natural (ANR) >10K OTM puts traded with almost 4K on the ask

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 AGQ, SLW, and GDX from yesterday for huge gains.

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.