VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday, S&P futures were down across the board, taking yet another page from the "Global Growth Slowness" story. Futures did trade in a very tight range, moving just 7 handles top to bottom, opening near the 1460 level. Boeing (NYSE:BA) and JP Morgan (NYSE:JPM) put the market under pressure early. BA had yet another incident with the 787 Dreamliner on Tuesday, which continues to put pressure on the stock. On the other side of the coin, Goldman Sachs reported an absolute blowout in earnings, crushing Wall Street's estimates across the board. A check of the NYMO shows the oscillator closed at +29.38 again, showing the market is neither overbought nor oversold at this point.

For those who track VIX futures, today is settlement Wednesday, where all cash futures are paid out on the first spot CBOE Volatility Index (VIX) reading. As I pointed out in the report yesterday (here), I expected the VIX settlement to be forced higher to accommodate the seller of the 119K contracts on the VIX 14 put strike. As it turns out, this was almost spot on, as January VIX settlement came in 13.69. As soon as the reading came in, SPX put offers were pulled back and reflected in the pop, initially almost kissing 14.00 before heading south and touching the 13.30 level in the first hour of trading. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were hit across the board, trading in lockstep with February futures. Following the theme where I pointed out the sale of the February 17-14 put spread, at least one trader expects volatility to increase in the next 28 days. This theme was followed today when a very big bear or a massive hedge was put on in the S&P ETF (NYSEARCA:SPY). Today at 9:38 am, 25K of the January 2014 147 strike puts were bought for 11.50, which cost the trader a whopping 28.75M in net premium. As it turns out, the trader was not done, as another 17,466 block then was also bought for 11.50 again just 13 short minutes later for another 20M. In total, the trader bought more than 50K of the SPY 147 strike puts, costing the trader almost 60M in net premium. Either a large contrarian bear just stepped up to the plate, or someone is hedging a very large portfolio and is taking advantage of the low volatility. Either way, it is worth noting to anyone who has positions in the market.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· January Settlement 13.69

· February VIX futures 15.78

· March VIX futures 17.23


· February VIX futures 15.53

· March VIX futures 17.00

· April VIX futures 17.95

Options Paper:

The market Wednesday continued to build a base again, reclaiming the 1470 level. Options were average volume, trading just over 15.5M contracts on the day. SPY led the show with 1.3M contracts, with Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), Russell ETF (NYSEARCA:IWM), and Facebook (NASDAQ:FB) rounding the top 5. The market continued to shrug off bad news, closing near flat on the day. Computer maker Dell (DELL) saw a sharp drop after reports one of the investors of the LBO were pulling out, sending shares sharply lower. Other active stocks Ford (NYSE:F), Intel (NASDAQ:INTC), and Research in Motion (RIMM) continued to trade above average option volume.

AAPL has been the talk of CNBC the past few days, trading down from 530 and touching 483 just yesterday. It appears every analyst who was so bullish at 700.00 appears to be reversing course down some 215.00 later, which I find more than amusing. For those who follow my trades on Twitter, I flagged the massive AAPL put buying, and I hope this saved you some coin. Today the data reversed hard, as puts were sold instead of bought to the tune of 8.7M, and calls were bought to the tune of 18.2M in net premium. The largest bull today was a buyer of the March 530-610 call spread 2K times, paying 17.15 for the 530s and selling the 610 calls against it for 3.25. The net of this trade -- the bull paid 2.78M, believing AAPL will return to the 610 level between now and March expiration. This trade would result in huge profits if AAPL was anywhere above 544 on March expiration. Options activity was 10% above average today, with calls outnumbering puts 1.4 to 1.

Statistics and Screenshot Provided By LiveVol

A name that appears in my daily article quite often, Celsion (NASDAQ:CLSN) today saw volatility spike to levels I have never seen. Just after 1:35 pm, a huge sell order of 970K shares went off, driving the price of CLSN down 50%, and trading down to 6.17 before the stock was halted. This gets even more interesting, as CLSN saw some crazy action today in the options world, when more than 1.2M in net put premium was purchased today just 1 hour before the drop. The February 6-3 1:2 put spread, as well as many diagonal and calendar trades all over the place, betting this stock is going to explode one way or the other. CLSN currently has an implied volatility of ~440%, up another 29% on the day. It's hard to believe, but the current 8.00 February straddle is asking 7.50 to put on the trade, which implies CLSN will be below .50 or above 15.50 at February expiration. Currently, there are only 3 stocks with higher implied volatilities: Cardiome (NASDAQ:CRME-OLD) at 500%, Alvarion (NASDAQ:ALVR) at 543%, and Powerwave Technologies (NASDAQ:PWAV) sitting at a whopping 600%. It is important to note these stocks are extremely thinly traded and thus, no options activity causes IV to be way overstated, as they currently trade under 1.00. Bottom line: CLSN is a stock that has options volatility continuing to explode. Regardless of your theory or opinion, it appears CLSN is in for a very wild ride in the upcoming days or weeks. Options volume was a massive 87K contracts today, which is more than 6x average daily volume, with puts outnumbering calls 1.3 to 1.

Statistics and Screenshot Provided By LiveVol

CBS Corp (NYSE:CBS), a name I have flagged (here) on several occasions, today got the bulls paid following the almost 50K February 40 strike calls over the last 4 trading sessions. CBS announced after hours it is splitting the outdoor business into a REIT, and now those 40 strike calls are going to be worth millions, with CBS trading up above 41.00 in after hours. Even today, more than 1.2M in call options were purchased -- 68% on the offer -- as bulls piled into this name. Now that the news is out, it will be interesting to see where the bulls go from here, but this story is just one of many why investors need to pay attention to options and volatility. Options activity was more than 5x average daily volume, with calls outnumbering puts 6.8 to 1.

Statistics and Screenshot Provided By LiveVol

Popular ETFs and equity names with bullish/bearish paper:

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

SLM Corp (NYSE:SLM) 79% of the 6K OTM calls bought on offer

Amarin Corp (NASDAQ:AMRN) 74%

Cypress Semiconductor (NASDAQ:CY) 9.8K OTM calls bought

CarMax (NYSE:KMX) 66%

Vringo (VRNG) 63%

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

Sealed Air (NYSE:SEE) 99% or 2K OTM puts bought on offer

PepsiCo (NYSE:PEP) 67%

United Parcel (NYSE:UPS) 62% of the 3.7K OTM puts bought

Industrial ETF (NYSEARCA:XLI) 2.2K OTM puts bought following the 300K Financial XLF puts bought

Disclosure: I am long AGNC, APC, BA, EBAY, KERX, KOS, MTGE, NRG, PG, PSX, SWKS, VHC, and short: BWLD, CRM, DDD, FXE, NFLX, SPY.

Trades today: Bought CRM put calendar spread, sold MTGE calls, added to SPY puts.

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.