VIX - Options Volatility And Market Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Thursday S&P futures were actually trading lower heading into the open. Futures moved from 1,517 all the way down and touching 1,510 before rallying throughout the day, attempting to break through the 1,520 level yet again. Unlike yesterday the news out of the Eurozone was not as positive as Germany showed contracting GDP numbers. Cisco Systems (NASDAQ:CSCO) was mostly flat following the most recent quarter beating expectations and guiding inline with analysts. In the kick yourself piece of the week I yesterday did not get a fill on the 25 strike Constellation (NYSE:STZ) calls I was trying to buy because I didn't pay the extra .10 for the ask. Of course today STZ up 35% on news that AB InBev (NYSE:BUD) amended the terms of the $20 billion deal attempting to avoid the additional litigation. Other merger news was the $28 billion deal for Berkshire Hathaway and 3G Capital to acquire HJ Heinz (HNZ) for 72.50 per share. Mergers have now topped $180 billion this year as companies continue to put money to work.

Tuesday I made the case on the sonar (here) about how I saw the VIX settlement and I received many messages and comments regarding the call. I encourage everyone who has any question to ask and or follow me on Twitter to get answers to anything VIX related. Today spot CBOE Volatility Index (VIX) and front month futures were again lower on the back of market overall strength. I mentioned earlier I cannot wait to see all the analysts talk about the VIX tomorrow heading into the 3 day weekend as I fully expect the VIX to again touch new lows. The VIX has touched 12.29 in the past but those who read my articles know I don't care about spot VIX - I care about futures. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) traded flat to up initially before catching selling pressure yet again. Yesterday I pointed out (here) a very large 115K VIX May 18-25 call spread which was bought as some eye upcoming volatility. Again the VIX pits were active yet again, this time with call rolls and call purchases in March and April possibly closing some volatility shorts. Today 3M+ in net call premium was purchased against 781K of put premium. VIX volume remained strong as is typical post VIX settlement.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· March VIX futures 14.78

· April VIX futures 15.78

· May VIX Futures 16.53


· March VIX futures 14.58

· April VIX futures 15.70

· May VIX Futures 16.45

Options Paper:

Options paper returned although masked by some dividend capture plays the market did trade north of 17M contracts. Just like yesterday S&P ETF (NYSEARCA:SPY), S&P Index ^SPX, and the VIX were the top 3 in terms of option contracts followed by Apple (NASDAQ:AAPL), Russell ETF (NYSEARCA:IWM) and STZ. STZ was the only one other than the VIX trading above average in the top 6. BlackBerry (NASDAQ:BBRY), Gold ETF (GLD) and Silver ETF (NYSEARCA:SLV) all did see heavy option volume but directions other than BBRY were not super clear. For those who follow me and my trades on Twitter I did make a mistake today by not taking profits in my EOG Resources (NYSE:EOG) trade. This stock opened above 138 and fell throughout the day closing near the lows after reporting earnings. In terms of option sentiment EOG continued to be very bullish as bullish call rolls went off throughout the day booking profits but staying bullish as March 130, 135 and 140 strike calls were active across the board. Overall options volume was more than 3x average daily volume with calls outnumbering puts 1.7 to 1. I will look to sell upside calls against my position to help reduce the impact of time decay.

Statistics and Screenshot Provided By LiveVol

DirecTV (DTV) reported earnings today and apparently did not impress investors as the stock sold off 3.2% closing near the lows of the day. An interesting trade I wanted to point out was just before the end of the day, a bull stepped in buying the June 50-55 call ratio spread 4K x 8K times. The net of this trade the trader bought the June 50 calls 4K times for 2.79 and sold the June 55 calls 8K times for .87. The net of this trade one bull laid out 400K+ believing DTV will be above 51.05 but below 55.00 as of June expiration. The trader stands to make 1.6M if the thesis is correct. This trader is not alone because on top of this 400K bet another 700K in net call premium was bought throughout the day as traders used the weakness as a buying opportunity. Options activity was more than 5x average daily volume with calls outnumbering puts 1.3 to 1.

Statistics and Screenshot Provided By LiveVol

Popular ETFs and equity names with bullish / bearish paper:

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

PetroLogistics (NYSE:PDH) 88% - June 17.5 call buyers 2.3K times

Advance Auto Parts (NYSE:AAP) 73% - Call buyers keep stepping up

Tyco (NYSE:TYC) 53% - Call rolls dominate

Ultra Petroleum (NASDAQ:UPL) 53% - Feb 18 strike calls bought heavy ahead of earnings tomorrow

Owens-Illinois (NYSE:OI) 2.1K ISE calls

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

Japan ETF (NYSEARCA:EWJ) 95% of 31K OTM puts bought

Advanced Micro Devices (NASDAQ:AMD) 88% of the 21K OTM puts bought

Best Buy (NYSE:BBY) 68% of the 38.7K puts bought on offer

Yahoo! (YHOO) 67% - Interesting 8.4K OTM puts bought

Bond ETF (NYSEARCA:HYG) 11.2K ISE puts - Something to keep in mind 92-89 and 93-90 puts bought 1M in premium

Targa Resources (NYSE:TRGP) 1K ISE Puts

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long AGNC, AVGO, BA, CBB, CONE, F, INTC, KERX, KOS, MOS, MTGE, NRG, PCLN (straddle), TUMI, VHC, VOD, and I am short DDD, DNDN puts, EDU, LULU, PCLN (Strangle), SPY

Trades Today: Sold DNDN puts, Bought LULU put diagonal.

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.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here