VIX - Options Volatility And Market Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday S&P futures continued to stabilize after coming back late in the day Thursday. Futures bounced yesterday at 1495 on Thursday futures never looked back trading up and back to the 1512 level on Friday before some selling returned. Today fears returned out of the eurozone after the European Commission cut its outlook predicting the economy will contract again this year. The initial outlook expected a gain of 0.1% and now has cut the forecast to -0.3%. German business confidence again increased helping to support future prices when the IFO climate index moved up to 107.4 from the 104.3 reading in January. On the earnings front, Hewlett Packard (NYSE:HPQ) and AIG (NYSE:AIG) both delivered solid quarters although HPQ beat very low estimates and despite a 16% drop in profit. A final check on the NYMO for the week showed a large drop with a reading of -45.94, another 20.67 point decrease. I would expect this to move back up after today's rally towards the 30 level.

Wednesday the sonar report (here) pointed out a large 34.5K call block sale of volatility helping to keep futures down. Thursday (here) I mentioned that trader was now sitting at a 2.25M loss as futures continued to go higher. Today is a prime example of why we follow volatility and understand it in terms of investing. The spot CBOE Volatility Index (VIX) and futures had been gaining but spot VIX was much higher than futures gains. This move was "the tell" showing today would be a good day on the market. HPQ and AIG earnings of course helped the markets as HPQ was giving almost 33% of the DJIA gains for the day. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) selling pressure returned as volatility sellers again hit the bids all day. VXX did see some late paper yesterday after I submitted the article, which was almost all bearish VXX. VXX today was all over the place in terms of options with both puts and calls both bought and sold. No clear tell today as there was yesterday but one large buyer of the June 24-22 put spread went off today paying 1.26 looking to expand to 2.00 if VXX continues to fall prior to June expiration.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


  • March VIX futures 15.93
  • April VIX futures 16.35
  • May VIX Futures 16.83


  • March VIX futures 15.03
  • April VIX futures 15.80
  • May VIX Futures 16.42

Options Paper:

Option paper again was sluggish today only trading 12M contracts with 1 hour left in trading. S&P ETF (NYSEARCA:SPY), S&P Index ^SPX, Apple (NASDAQ:AAPL), Russell ETF (NYSEARCA:IWM), and Bank of America (NYSE:BAC) were the top 5 in terms of options activity. The only name trading above average, however, was the SPY in the top 5. Dow Chemical (DOW) was one name who did see heavy option volume today and more than 80% was one single trade. DOW saw the January 2014 40-45 strike call spread was bought for .37 50,000 times. This 1.85M trade is a very bullish bet as DOW has struggled since the earnings release but is trying to bounce near longer term moving averages. More than 3M worth of call premium was bought in this name today with calls outpacing puts 8 to 1. Option volume was almost 5x average daily volume in this name with calls bought on the offer 51% of the time and OTM calls bought 96% on the offer.

Statistics and Screenshot Provided By LiveVol

Las Vegas Sands (NYSE:LVS) saw some massive bullish bets today as bulls piled into the options market. Two very large plays caught my attention today. First one large buyer came in early in the day buying 17.3K of the May 52.5 strike calls for 2.05. This is a 3.56M bet believing LVS will be above 54.54 on May expiration and follows other bullish flows into LVS earlier this week. Another interesting move was a buyer of the March 52.25-55 call ratio 1:2 spread paying .18 for the trade. This is a very bullish trade believing the stock could be short-term capped near 55 but is bullish none the less. Option activity was more than 3x average daily volume with calls outnumbering puts 6.8 to 1 on the day. Calls were bought on the ask 56% of the time and saw more than 7M worth of net call premium bought on the day.

Statistics and Screenshot Provided By LiveVol

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

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

Quest Diagnostics (NYSE:DGX) 92% - May 65 call buyers

Navistar International (NYSE:NAV) 91% - April 30 calls bought 12K times

Oil ETF (NYSEARCA:USO) 77% - March 35.5 calls bought

Barnes & Noble (NYSE:BKS) 74% - Call buyers ahead of earnings

Ericsson (NASDAQ:ERIC) 72% - April 13 calls bought

Caesars (NASDAQ:CZR) 67% - Call buying ahead of earnings on Monday

Peabody (NYSE:BTU) 66% - September 27 strike calls bought 5K times

Saks (NYSE:SKS) 3.8K ISE calls

Youku (NYSE:YOKU) 2.6K ISE calls

Weatherford (NYSE:WFT) 1.9K ISE calls

Thermo Fisher (NYSE:TMO) 1.5K ISE calls

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

Ultra Silver ETF (NYSEARCA:AGQ) 81% - 3.2K OTM puts

Nordstrom (NYSE:JWN) 80% - Interesting retailer short play

Warner Chilcott (NASDAQ:WCRX) 63% - 2.8K OTM puts bought

Alpha Natural (ANR) 61% - 5.5K OTM puts

Michael Kors (NYSE:KORS) 54% - Secondary offering has put pressure on this stock

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long AGNC, BA, CBB, CONE, MTGE, NRG, TUMI, VHC, VOD, and I am short ARUN, DDD, EDU, HPQ, LULU, SPY

Trades Today: Closed PCLN straddle / strangle, Closed RKT long (Booyah), Closed ANF short, Closed HPQ short (Crying)

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.