VIX - Options Volatility And Market Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Tuesday, S&P futures were surprisingly higher, despite very heavy selling pressure on worldwide markets. Futures yesterday touched a low of 1481.75 before heading back higher, opening almost 12 handles higher near 1493. The futures, of course, swung wildly, as the Federal Reserve Chairman Bernanke was speaking in front of Congress. Moving quickly from 1492 down to 1485, then swinging back, heading back towards 1497.50, the market continued to quickly move back and forth. Also moving the market today, earnings out of Home Depot (NYSE:HD) beat the analysts' estimates and announced a $17b share repurchase program. Tomorrow could also have some moves, as we expect the core durable goods, pending home sales and Mr. Bernanke's second day on the Hill. This is worth nothing, as the March 8 weekly 148-145 put spread was bought heavy all day, and saw 30K contracts trade in the last 10 minutes of the day for .50 offer.

The spot CBOE Volatility Index (VIX) and futures did come in today after spot VIX gapped higher yesterday by more than 30%. Front month futures screamed to the upside, causing volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) shorts to run for cover. Considering it doesn't take much to get better than yesterday's tape, today was strong in comparison. This strength today did see futures come in, but remained relatively strong, considering the violent 25 handle sell-off we had yesterday. This was the second engulfing candle we have seen in 3 trading days, which has some on edge about where the direction of the market is headed. Heavy VIX action today, as more than 1.3M calls traded hands, with large call spreads going off -- specifically, the April 20-25 call spread, which traded almost 150K times. Calls outnumbered puts almost 2 to 1 in the VIX today, with 5.7M in call premium bought versus 3.2M in put premium also purchased. Shorting volatility has been the hot trade and very profitable over the last 3 months. Anyone who reads my articles knows I am not in this same boat, and trades always work until they don't.

Statistics and Screenshot Provided By LiveVol

VIX futures are below.


· March VIX futures 17.65

· April VIX futures 17.47

· May VIX Futures 17.52


· March VIX futures 17.00

· April VIX futures 17.35

· May VIX Futures 17.55

Options Paper:

Option paper was again pretty decent in Tuesday's session, trading 18.1M contracts on the day. S&P ETF (NYSEARCA:SPY), ^VIX, S&P Index ^SPX, Russell ETF (NYSEARCA:IWM), and Apple (NASDAQ:AAPL) were the top liquid names today. Interestingly enough, every single name except for AAPL in the top 5 was all well over average option volume, with SPY trading 3.4M versus a 2.2M average. VXX also had some crazy volume today, trading 500K worth of paper against a typical day, usually only seeing ~208K. Gold ETF (NYSEARCA:GLD), Silver ETF (NYSEARCA:SLV), Bank of America (NYSE:BAC), and Citigroup (NYSE:C) also saw above average option activity, with bullish paper hitting most of them. One name, Morgan Stanley (NYSE:MS), had an interesting day yesterday and today, as yesterday, MS saw more than 4.5M in put paper bought on the name, and today saw 1.1M sold. The last name in this group reports after the bell tonight -- First Solar (NASDAQ:FSLR), which saw 2.5x average daily volume, with bears and bulls both getting ready for earnings. Today, IV was up more than 14% ahead of earnings, as more than 250K of calls were bought and 786K of puts were also bought. FSLR, of course, traded down more than 4% on the day, so if options are telling me anything, FSLR trades down tomorrow. I really wanted to short this name ahead of earnings, but just having been burnt so many times doing so, I could not pull the trigger.

Statistics and Screenshot Provided By LiveVol (NYSE:CRM) is a name that reports earnings after the bell on Thursday, and has been hit hard from the recent market weakness. For those who follow me and my trades on Twitter, I did initiate a long in this name on Friday and doubled the position yesterday on the weakness. Early today, my position was up more than 20%, but did not take it off and now, sure enough, I am crying. CRM faded hard as March 165 put buyers came in today, with weekly puts also being bought heavy. Just as I was about to dump the position, some larger call buyers came in today, buying almost 613K worth of net call premium, helping to lift my spirits, but the position is still at a loss. I really wanted to sell volatility in this name using a double diagonal or ratio, but I just cannot get a fill. CRM traded 1.3x average daily volume, with calls bought on the ask 33% of the time against puts, seeing 28% buy ratio. Anyone who followed me into this trade, I 100% recommend placing stops, as weakness below 162ish will more than likely trigger more selling.

Statistics and Screenshot Provided By LiveVol

Popular ETFs and equity names with bullish/bearish paper:

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

Forest Oil (NYSE:FST) 93% - April 7 calls bought, but April 6 puts also bought

CH Robinson (NASDAQ:CHRW) 90% - 5K May 62.5 calls bought against long stock

Priceline (PCLN) 72% - Heavy weekly call buying of many strikes ahead of earnings

DirecTV (NYSE:DTV) 75% - Almost 12K OTM calls bought

Sequenom (NASDAQ:SQNM) 76% - Block call buyers coming back into this speculative stock

IMPAX Lab (IPXL) 2.5K ISE calls

GNC Holdings (NYSE:GNC) 2K ISE calls

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

Alcatel-Lucent (ALU) 100% - Very odd March 1 puts bought tied to stock and apparent call buy

News Corp (NASDAQ:NWSA) 86% - Jan 25 puts bought in blocks today 2.2K times

QUALCOMM (NASDAQ:QCOM) 79% - March 60 puts bought as 67.5 calls sold for slight credit 6K times

VF Corp (NYSE:VFC) 7.5K ISE puts (Could be bull short put spread)

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

Trades Today: Bought more CRM calls, bought IOC call diagonal 1x2

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.