VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Thursday saw again very light volume in the pre-market S&P futures with another 6 handle move. These numbers began to weaken into the market open after a disappointing employment number. The expected claim number was to come in at 372K but the actual came in 9K higher at 381K. In addition to these additional claims the last reading was also revised up 2K.

At the open the CBOE Volatility Index (VIX) was down and continued to retreat down below the 23 level. On such a strong tape one would believe this would have traded below the 22 level. I believe the reason the spot VIX stayed somewhat elevated is once again the VIX futures did not budge pricing in January VIX futures at 26.15. This once again shows fear continues to be bid as large funds are not willing to give up put protection on the SPX.

Options Paper:

General Growth Properties (NYSE:GGP) saw a large block trade 15K of the 14 February puts bought against no open interest. These crossed the wire just after 10:30 and the stock reacted by dropping almost instantly. The spreads on this name are very wide as GGP normally only trades north of 1,000 options a day. Puts outnumber calls more than 30:1 on volume 15x normal. I currently have orders in to follow this trade with a spread but have not executed at the time of this writing.

The S&P ETF (NYSEARCA:SPY) had a repeat of my report from yesterday saw some very heavy flow into the puts. Today a large 23K collar was purchased on the SPY. They sold 23K of the 125 SPY calls and used the proceeds to buy 23K of the 125 puts. The calls were sold for 4.57 and the puts were bought for 3.78 for a net credit of .79. This would be greatly profitable with SPY below 125.79 at February expiration.

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

Calls outnumbering puts:

Weatherford (NYSE:WFT) 31:1

Duke Energy (NYSE:DUK) 33:1

Crocs Inc (NASDAQ:CROX) 45:1 (Largest blocks of calls were sold a possible bearish tell)

Puts outnumbering calls:

Thompson Creek Metals (TC) 89:1 (Most of these were sold just above ask which would be a bullish tell)

Health Care ETF (NYSEARCA:XLV) 21:1

S&P Retail ETF (NYSEARCA:XRT) 13:1

Volatility Explosion:

PHH Corp. (NYSE:PHH) in the last five days has seen IV explode to the upside more than 100%. Five days ago implied volatility was shown at 41% and is now trading north of 86%. Even today in a flat tape in terms of PHH the IV continues to rise showing yet more concern of a continued fall in PHH. PHH was trading north of 15 just last week and puts continue to gain value as volatility increases. Someone who likes PHH could consider selling PHH puts here to generate income.

Recently Amazon (NASDAQ:AMZN) has been underperforming the broader market and today was no different. AMZN traded down more than 3% in early trading, causing the weekly puts to explode in value with the 165 and 160 puts. Sellers came in hard of this week’s puts which actually is supporting AMZN prices but next week’s puts continued to hold value.

Volatility Implosion:

Delphi (NYSE:DFG) over the last week has seen volatility come in hard and is now sitting at a 52-week low. Long straddles and other methods which could take advantage of low volatility could be a great play for people looking for some movement in this stock in the future.

Other Options Action:

Bank of America (NYSE:BAC) saw a large Jan 2013 call purchase 30K times. This is a single 630K bet BAC will return to the teens prior to January 2013. The calls were clearly purchased and appears to be a bullish long term bet for BAC to recover.

Barrick Gold (NYSE:ABX) saw a large risk reversal rolled down. ABX saw a 43 put, 45 – 50 call spread shutdown and rolled to a 41 put , 43 – 47 call spread risk reversal in the same February expiration. It appears this ABX bull sees consolidation down here and is expecting a bounce from here.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long AGNC, NLY, SDS


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.

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