VIX/Volatility Options Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday was an interesting day as it relates to the CBOE Volatility Index (.VIX). The fear indicator opened down and climbed steadily throughout the day as worries of an S&P downgrade to Europe continued to eat away the gains earlier in the day. The key here is the (.SPX) index opened up huge climbing as high as 1266 before fading hard into the close. As of the writing of this the S&P is down 16 handles to the 1250 mark. The VIX and S&P index both up suggest an increase in options premium meaning people are paying up for insurance to the downside.

Options Paper:

Dollar General (NYSE:DG) saw more than 10x normal option paper today when 15,000 contracts traded. The majority of these appear to be on the put side suggesting a possible pullback for this stock from the recent run-up in price. The 45, 41, and 40 puts traded in large quantities and will be interesting trade in the upcoming days.

Volatility Explosion:

Illlumina (NASDAQ:ILMN) volatility shot up more than 8 points today after the Biotech company stock price went from 28.00 to 32.00 in under an hour on very heavy volume. The price action faded into the close with the rest of the market.

Volatility Implosion:

SuccessFactors (NYSE:SFSF) volatility imploded on this stock when SAP made a 3.4 billion dollar offer to buyout the company. This buyout offer equates to ~40.00 per share and the stock reacted as such. Option volume skyrocketed as the 40 call line was sold across the board with people trying to take in premium. An interesting note a trader just last Friday put on a 15,000 bet at the 31 call strike price which is now worth shot up more than 850,000 if sold today.

Other Options Action:

TiVo (NASDAQ:TIVO) traded 38:1 calls to puts today on light options volume. Don't be fooled as the majority of this call action papered to be call selling.

S&P Metals ETF (NYSEARCA:XME) once again saw higher than normal put activity with traders taking a bearish stance on this red hot ETF. This time the 46 puts were bought 17,000 times in comparison to last week’s 43 and 50 put lines. XME traded 23:1 puts to calls to end the day.

iShares Italy ETF (NYSEARCA:EWI) saw some major put buying today with puts outnumbering calls almost 8:1. Even though the Italian 10 year note saw more than a 50 point drop some traders believe the next leg could be down. It is important to note European ETF's across the board saw heavy put volume leading up to this week’s events.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in XME, EWI over the next 72 hours.

Additional disclosure: Additional disclosure: 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.