VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday saw S&P futures drifting in the pre-market. ES Futures opened around 1374 and traded up to 1381.70 before reversing lower. The gap up caused many investors and traders to fade the pop, sending futures down to 1359 heading into the final hour of trading. We are quickly approaching a potential oversold market where we very well could bounce. Oversold markets and potential bounces are when the NYMO hits -80. For reference the NYMO Oscillator closed with a reading of -86.98. A great play in the event you want to play for a bounce is to buy Leveraged S&P ETF (NYSEARCA:SDS) puts. Remember SDS is a short ETF so puts is short a short position or net long and therefore would profit if the market jumped 30 handles.

For those who follow my trades on Twitter know yesterday I executed a short trade on Cisco Systems (NASDAQ:CSCO). Unfortunately for me CSCO beat on both the top and bottom line and therefore sent the stock soaring. Again this is why we play volatility as I bought the 16.5 - 15.5 1:2 put spread which allowed me to make a directional bet down for no cost. Because I played the November options I will just keep this short on and let it expire worthless and my losses will just be the fees to put the trade on. Other positive releases from Abercrombie & Fitch (NYSE:ANF) and Staples (NASDAQ:SPLS) had both stocks up in today's trading session. The options volatility collapsed in the names reporting earnings such as ANF, SPLS and CSCO. However, other individual stocks saw volatility rise in both puts and calls.

The spot CBOE Volatility Index (VIX) actually went below 16 in the Wednesday session on a technical glitch and never looked back. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were trading down initially until ripping higher as the sellers of VIX futures in the past 5 trading sessions covered short calls and sold puts hot and heavy. Net premium was more than 3.3M worth of calls bought versus 691K of puts sold which tracks with the VIX futures.

Statistics and Screenshot Provided By LiveVol

Large call purchases were seen on the floor and can be viewed in this video. (Here) For those holding volatility ETFs please remember the real gains come from backwardation of VIX futures. VIX futures are below.


· November VIX futures 16.78

· December VIX futures 18.13

· January VIX futures 19.75


· November VIX futures 17.70

· December VIX futures 19.03

· January VIX futures 20.55

Options Paper:

In a very negative tape a couple of decent bullish plays showed up. First the Vodafone (NASDAQ:VOD) options volatility spiked after more than 5K of the December 25 calls went off. These calls were almost 4x average daily volume and was followed by some April 27-30 call spread buyers. This name fell hard on Tuesday after Verizon (NYSE:VZ) announced a distribution causing VOD to trade down almost 5%. Now bulls are stepping back in trying to play for a rebound. Volatility has been all over the place but now stands at 17.5% which is just 3% above the 52 week low. Outright calls or puts are probably the best way to play this name until volatility pops for those looking to make a directional bet. Calls outnumbered puts 5 to 1 in today's trading session.

In last week's sonar report (here) I highlighted a bearish put fly in defense name Lockheed Martin (NYSE:LMT). The stock began to drift lower before recovering yesterday until the bears stepped up today buying puts hand over fist. Today the January 87.5 strike put was the most actively traded strike. More than 488K of put premium was purchased today with puts outnumbering calls more than 9 to 1. The 2.25K of 87.5 strike puts continues the large bearish theme we highlighted last week with the 85-80-75 put fly. Just shortly after this trade went off LMT dove another 1% to close the day down 2.07 or 2.3% at 88.11. Options activity was slightly higher today than average trading around 1.25x normal volume.

Popular ETFs and equity names with bullish / bearish paper:

Bullish Option Flows - ISE & % OTM calls bought on offer

Carters (NYSE:CRI) 9,098 calls against just 1 ISE put

WR Grace (NYSE:GRA) 7,193 calls against just 1 ISE put

CBS Corp (NYSE:CBS) ISE call buying follows call selling in name

Interpublic (NYSE:IPG) 68%

KB Home (NYSE:KBH) 62%

Newcastle Investment (NCT) 61%

Companhia Vale (NYSE:RIO) Speculative call buyers stepped in buying 5.1K OTM calls

Elan Corp (NYSE:ELN) 59%

Bearish Option Flows - ISE & % OTM puts bought on offer

USG Corp (NYSE:USG) 2,367 puts against just 1 ISE call

Energy Transfer (NYSE:ETE) More than 1K ISE puts bought

Virgin Media (NASDAQ:VMED) 82% of 6.6K puts bought on offer

Goodrich Petroleum (NYSEMKT:GDP) 81% of puts bought on offer

Tesla Motors (NASDAQ:TSLA) 2,187 of puts bought on offer

Celsion (NASDAQ:CLSN) 77% of 4,950 OTM puts bought on offer

Avis Budget (NASDAQ:CAR) 2,614 puts bought on offer

Apple Inc (NASDAQ:AAPL) More than 5.7M worth of net calls sold on the bid

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!



I am short: CSCO, FE, FNSR, FXE, FXY, HES,

Trades today: Closed AAPL, RHT

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.