VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Tuesday S&P futures traded in a fairly tight 10 handle move top to bottom. Opening at 1417.60 and then moving lower in early trading as Asia and Europe markets moving down to 1415. This was shortly lived as throughout the night futures began to climb and bucked higher a full 10 handles again pressing above the 1420 level to 1425.50. The US markets continued to build on the momentum in the first hour of trading moving the SPX back to the 1430 level and is now trying to break through towards the 1440 level. As a point of reference almost every single stock on my default watch list opened green today. I have not seen this in quite some time as fear continues to leave the market. A check on the NYMO oscillator continues to move back toward neutral and closed yesterday with a reading of 23 again showing the market is nowhere near oversold or overbought.

The spot CBOE Volatility Index (VIX) dropped like a rock to start the day moving back towards the 15.5% range. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were slapped down initially before perking back up the final hour and a half as the market began to weaken. Today one very large trade dominated the VIX pits as a large player dumped 25-32.5 January 1:2 call spread and rolled it forward a month to February. This was done 25K-50K times accounting for more than 25% of all VIX contracts trading going into the final hour of trade. The VIX did settle back below 15.75 to end the trading day with futures really taking it on the chin.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· December VIX futures 16.03

· January VIX futures 17.15

· February VIX futures 18.18


· December VIX futures 15.55

· January VIX futures 16.55

· February VIX futures 17.63

Options Paper:

The market again closed with pathetic option volume trading just 14.5M contracts with the majority of those being dividend steals from Starwood (HOT), Motorola (NYSE:MSI), Fidelity (NYSE:FNF), and Ingersoll-Rand (NYSE:IR). Of the volume S&P ETF (NYSEARCA:SPY), ^SPX, Apple (NASDAQ:AAPL), ^VIX, and the Russell ETF (NYSEARCA:IWM) accounted for 4.4M of these contracts. AAPL again led individual names with 693K followed only by Bank of America (NYSE:BAC) trading just 371K. In my article dedicated to AAPL (here) I mentioned getting into the February 600-650-700 call butterfly for free. Yesterday I bought the 600-700 call stupid for 14.00 and today I was just .10 from getting my fill of selling the 2x of the 650 February calls for 7.00 which would have allowed me to get into the trade for free. Hopefully, we can get some follow through pushing AAPL back towards 550 for me to get a fill. For those who follow my trades on twitter I did place a couple of other non AAPL trades today which I outline below.

My big long of the day is on a little known name Kosmos Energy (NYSE:KOS) where I followed one large bull into this name. KOS is a name which is very lightly traded and until just 3 short days ago only had 890 open contracts across all call strikes. However, in the last 4 trading days KOS April 12.5 calls were bought hot and heavy in large blocks driving the premiums and stock price higher. Today after confirming the April 12.5 calls had 10K open interest I bought some calls for my IRA following yet again more call buying in this name. Today again saw more than 3.3K calls trade with 49% bought on the offer following the 90% bought on the offer over the last 4 trading days. Calls outnumbered puts 16:1 on more than 16 times average daily option volume today.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

For those traders looking for a quick buck Oil ETF (OIH may be the way to go. Today more than 484K in net premium in terms of calls with the December 40 strike calls leading the way. More than 17.5K calls traded today in this strike alone making up for more than 60% of all calls traded today. Of the 25K calls more than 65% were bought on the ask signaling someone believes this ETF could move higher into December expiration. Options activity was almost 3x average daily volume with calls outnumbering puts more than 3.3:1. I will keep my eye on this as IV is super cheap in this name so outright calls would be the best play trading near a 52 week low.

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

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

Talisman (NYSE:TLM) 99% of the 2,579 OTM calls bought on offer

Virgin Media (NASDAQ:VMED) 4.8K OTM calls bought

Electronic Arts (NASDAQ:EA) 86% of the 35K calls traded were on the offer

Zhongpin (NASDAQ:HOGS) 2K OTM calls bought

Elan Corp (NYSE:ELN) 70% bought

JetBlue (NASDAQ:JBLU) 69%

Celanese (NYSE:CE) 67%

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

Sirius (NASDAQ:SIRI) 81% of 3.1K OTM puts bought on offer

Zhongpin 81% - Looks like from calls strangles were the play

Western Refiner (NYSE:WNR) 74%

Network Appliance (NASDAQ:NTAP) 69% of 8.5K OTM puts

Valero Energy (NYSE:VLO) 2.6K OTM puts bought

Delta Air Lines (NYSE:DAL) 49%

ConocoPhillips (NYSE:COP) 48% large put rolls

Celsion (NASDAQ:CLSN) 42% of 6.1K puts bought on offer - Volatility sky high expecting huge move up or down

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long: AAPL, AGNC, AGQ, APC, KERX, KOS, MTGE, PG, PSX, VHC

I am short: DB, FSLR, FXE, LYV, SPY

Trades today: Closed MNST calls (100% gain booyah), Trimmed AAPL long, Bought KOS calls

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.

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.