VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday S&P futures drifted slightly lower to flat heading into the open. The market was awaiting the next statement from Fed Chairman Bernanke who is expected to speak beginning at 16:00 EST. The market continues to show amazing resiliency awaiting big earnings coming from JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC), and Goldman Sachs (NYSE:GS) all reporting this week. Stocks were also under pressure today after Apple (NASDAQ:AAPL) reportedly cut orders for iPhone 5 components due to weaker-than-expected demand for the device. Not all news was bad though as Research in Motion (RIMM) continued to rocket higher as shorts literally appear to be running for cover. A check on the NYMO shows the oscillator closed at +39.85 after the market pulled back ever so slightly last Friday.

Today is another perfect example of why the spot CBOE Volatility Index (VIX) has little to do with VIX futures. The VIX was up over 1.6% in earlier trading today yet volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were down with futures across the board with just 2 hours left to trade. The pressure continued throughout the day especially after the February 17-14 strike put spread went off more than 25K times. This was in the middle of the spread at the time and could be a closing transaction with current OI sitting around 230K and 172K contracts so we'll have to see tomorrow if someone was just taking profits on a long put position. Although some calls were bought today most notably the March 23 call was bought 13.4K in blocks along with the February 25 calls. Again we will need to continue to look at open interest to confirm if these are new positions or closing short positions.

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Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· January VIX futures 14.33

· February VIX futures 16.18

· March VIX futures 17.73


· January VIX futures 14.08

· February VIX futures 15.85

· March VIX futures 17.38

Options Paper:

As the market continues to build a base near the 1470 level it appears poised to jump up and kiss the 1500 level in the near future. The lack of VIX call buying continues to back this theory but remember earnings are coming fast and could change this theory on a dime. Options activity was led today by S&P ETF (NYSEARCA:SPY), Apple , Emerging Market ETF (NYSEARCA:EEM), Facebook (NASDAQ:FB), and Research in Motion (RIMM). RIMM, as I mentioned on twitter and in my sonar report last Friday (here), continues to rocket higher on massive option volume. Today was no different with RIMM calls exploding to the upside but was met with some heavy profit takers as 42% of calls were sold on the bid. Most notable of the option action March 17 strike calls were very active trading more than 7.5K before the noon hour today. Other names active today were Bank of America , MetroPCS (PCS), and Intel (NASDAQ:INTC).

Again it appears the bulls are not done with consumer staples and today Constellation Brands (NYSE:STZ) saw a large bull step up to the plate. Today the February 37.5-42.5 strike call spread was bought 30K times driving the price from .65 to .80 ask. The stock traded down early in the day until the large block orders came pouring in around 9:50 today driving the stock higher throughout the day. More than 3M in net call premium was purchased today on very heavy volume in this name. STZ typically only trades 5.6K contracts total and today traded more than 83K just on the call side. It is important to note this does appear tied to the sale of an equal number of shares just minutes later. Options volume was more than 14x average daily volume with calls outnumbering puts 19:1.

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Statistics and Screenshot Provided By LiveVol

Another big bull came into today in tech name Yahoo! (YHOO). Today a large player came in selling the July 17 strike puts for .53 10,500 times collecting 556K in cash. The trader then used the cash to buy the same number of July 21 strike calls for .83 cents each spending 872K to purchase the calls. The net of this trade cost the trader ~316K + is holding 17M+ in margin to be short the puts. Regardless the is a bullish play believing YHOO will push north of 21.30 prior to July expiration. Option volume was not more than average today but did have calls outnumbering puts more than 2:1. YHOO recently came off a high of 20.32 and this trader is looking for a push back up and through this level in the upcoming months.

(Click to enlarge)

Statistics and Screenshot Provided By LiveVol

A bearish play which hit today was in specialty retailer PetSmart (NASDAQ:PETM). Today a buyer stepped up buying the April 65-60 put spread in full force for 1.30 ask at the time. This trade was executed 2K times and cost the trader just north of 260K to put the trade on. Interesting in this name as typically PETM only trades 291 puts a day and today traded more than 4K with puts outnumbering calls more than 20:1. Options volume was also more than 6x average daily volume in this name. Although I do not have a position in this name the trade makes all the sense in the world as they could believe the payroll tax could hurt the consumer in the specialty retailer space. I would consider a short on this name if we got a big pop with the S&P near 1500.

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

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

Healthcare ETF (NYSEARCA:XLV) 95%

AOL Inc (NYSE:AOL) 85%

MAKO Surgical (NASDAQ:MAKO) 5K OTM calls bought

Melco Crown (MPEL) 6K OTM calls bought

Fortinet (NASDAQ:FTNT) 66%

Alpha Natural (ANR) 51% - Buyer of March 11 strike calls 6K+

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

Halozyme (NASDAQ:HALO) 5.6K OTM puts bought on large up day

Johnson Controls (NYSE:JCI) 88%

JetBlue Airways (NASDAQ:JBLU) 78% - Airlines have been on fire, trader looking for pullback

Nike (NKW) 66% of 5.3K OTM puts bought on offer

Express Scripts (NASDAQ:ESRX) 62%

Dole Food (NYSE:DOLE) 61%

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!



I am short: BWLD, DDD, FXE, LYV, NFLX, SPY

Trades today: Sold BA calls against long position, Closed FSLR short,

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.

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