VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment

Today saw again very light volume in the pre-market S&P futures with only a 6 handle move. As the market opened initially pretty much flat it was met with initial selling pressure driving down the S&P more than 1% in early trading. The spot CBOE Volatility Index (VIX) has accelerated to the upside and traded over 23 and continued to climb as well as VIX futures.

The VIX once again forecasted the weakness in the broader markets such as the S&P. As the VIX continued to perk up the S&P index and futures both sold off with financials leading the weakness. Bank of America (NYSE:BAC) and Citigroup (NYSE:C) continue to have issues holding gains. The bulls will need to make a charge into the close or at the very least tomorrow or this will be yet another failed bullish breakout attempt.

Options Paper

Popular China ETF (NYSEARCA:FXI) saw a large put spread go off today on the 34 / 28 put 1:2. A block of 5K February 34 puts appear to have been bought while 10K of the 28 puts were sold. This was a net debit of .95 and the stock traded down as expected. This is probably in response to last night’s KOF Economic number, which came in at .01, which is far less than the expected .25. History tells us the last four times this number missed by more than .20 the FXI sold off in the weeks to follow.

The S&P ETF (NYSEARCA:SPY) saw some very heavy flow into the March 122 - 109 put spread. This appears to have been a large block trade, which net cost the trader ~2.75 for a 13.00 put spread. This trade could profit more than 400% between now and March if the market goes back to the lows experienced prior to October.

The NASDAQ ETF (NASDAQ:QQQ) also saw a January 54/53 put spread. The trade went off 29K times for a total trade cost of 841K. This trade would net 2.9 M if the QQQ sold off and goes below the 53 range prior to January expiration. Keep an eye on the tech sector as this could be a bearish tell.

Popular ETF’s and equity names with bullish / bearish paper in terms of call / put ratios:


US Dollar (NYSEARCA:UUP) 300:1 (8.8K of new position on ISE)

Level 3 (NASDAQ:LVLT) 300:1 (However almost 70% sold on bid)

Cheniere Energy (NYSEMKT:LNG) 15:1

Ultrashort Euro ETF (NYSEARCA:EUO) 14:1


NYSE Euronext (NYSE:NYX) 31:1

Fifth Third Bank (NASDAQ:FITB) 23:1

Lockheed Martin (NYSE:LMT) 5:1

Volatility Explosion

Molycorp (MCP) today saw share prices destroyed on heavy volume after a long-term analyst came out going negative on the once high flyer. MCP saw implied volatility soar more than 15% as shares traded down more than 12%. Put and call volume where pretty much even across the board; no specific directional information so it could be straddle buyers betting for a big move one way or the other. Volume while not explosive was above average.

Volatility Implosion

Mead Johnson (NYSE:MJN) again following the lead from yesterday saw a huge drop today. The traders who sold or went short those puts, which exploded more than 3600% after the news last week, made out like bandits. Those who sold (shorted) those Jan 65 puts as high as 6.55 last Friday can now cover for 1.50. Yet another reason playing volatility can be extremely profitable for traders willing to take the risk.

Other Options Action

Apollo Group (NASDAQ:APOL) has had an insane run over the last 60 days but it appears tides may be turning. Today more than 2.2K of the Jan 55 puts traded. The majority of these appear to be bought as puts outnumber calls more than 5:1. This name can be very volatile and I have an order in for the 60/55 put spread, which has not been filled at the time of this writing.

Gold Fields (NYSE:GFI) saw a bullish put roll today. Today a trader closed down a short Jan 14 put strike and rolled it to April 14 once, again selling the premium to collect the theta. This same trader continues to move this bullish bet on GFI, betting it will hold above 14 prior to April expiration.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long AGNC, NLY, SDS. I am short: VXX, SIAL, RAX, LNKD, FINL, EWG, DHI, AMZN.

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.