VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

Monday saw S&P futures trading down and continued to drop up and into the opening bell. A very common theme once again returned as the S&P ETF (NYSEARCA:SPY), Nasdaq ETF (NASDAQ:QQQ), Russell ETF (NYSEARCA:IWM) and even the S&P cash saw large put inflows today. This was after a bad personal spending economic number released earlier in the day. Tuesday has a very important consumer confidence number set to be released around 10:00 EST. Keep some dry powder as if Europe issues continue and if we get some bad confidence numbers the market could make for a very interesting day either long or short.

The weakness in the market was also shown in the CBOE Volatility Index (VIX) as it rallied back above 20.00 but again was pushed back down as the market melted up throughout the day.


February VIX futures 20.10

March VIX futures 22.20

April VIX futures 23.90


February VIX futures 20.70

March VIX futures 22.60

April VIX futures 24.13

Again this shows why the popular volatility index ETFs (NYSEARCA:VXX) and (NASDAQ:TVIX) under perform outright SPY puts or leveraged ETF (NYSEARCA:SDS) calls if one was looking to bet on the downside for the market.

Options Paper

Pitney Bowes (NYSE:PBI) who was on the sonar last week again lit up my option radar today. More than 18K puts traded today more than 60% bought at the ask. This follows up the July 17 and 16 puts from last week so it appears some traders are betting the holding above the 100 DMA will fail soon. I already owned PBI puts and added to my position today. PBI puts outnumbered calls more than 18:1 on the day.

Retailer ETF (NYSEARCA:XRT) had a 31K 52/47 March put spread bought today for .53. This is a very large hedge believing the XRT run could be over at least medium term as the 1.6 million dollar bet will more than 10x between now and March if XRT trades below 47 at March expiration. XRT puts outnumbered calls more than 33:1 on the trading day.

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

Calls outnumbering puts:

Watson Pharma (WPI) 98:1
Cambells (NYSE:CPB) 53:1
Short S&P (NYSEARCA:SH) 52:1
Hertz (NYSE:HTZ) 19:1
Echostar (NASDAQ:DISH) 15:1
Dry Ships (NASDAQ:DRYS) 16:1

Puts outnumbering calls:

Jefferies (NYSE:JEF) 11:1
Waters (NYSE:WAT) 10:1
Eagle Bulk (NASDAQ:EGLE) 12:1
Novellus (NASDAQ:NVLS-OLD) 8:1
Yum! Brands (NYSE:YUM) 4:1

Volatility Explosion

GTX Ord Shares (NASDAQ:GTXI) is a thinly traded small-cap stock. Today, however, saw a large surge in share price and a surge in calls. GTXI saw more than 22x normal daily volume and the calls were bought more than 40% of the time at the ask. The issue with such thinly traded names is the stock price can whipsaw all over the place and the calls being bought could be nothing more than shorts running for cover when the stock popped by 49% today. Calls outnumbered puts 4:1 today.

Volatility Implosion

Cell Therapeutics (NASDAQ:CTIC) saw implied volatility collapse today. I normally do not report on such small caps names such as GTXI or CTIC but the paper was very odd today. CTIC traded down 18% on the day and the largest trade was a seller of the February 1.5 straddle. This effectively would profit if CTIC would pin to the 1.5 at February expiration which would be almost a 50% gain from where they closed today. I have no play but as one would expect with so much option selling IV dropped almost 40% today.

Pep Boys (NYSE:PBY) got a nice buyout offer today allowing PBY stock to trade up to the 15.00 range. This move and buyout offer had a large number of call sellers come into the market and just a hint of put buyers for those who fear any deal issues could drop the stock price. The most odd trade of the day was the buyer of the 4,960 in a single block of the July 15 calls for .25. This would be above the 15.00 per share buyout offer and would suggest a higher offer than the 15.00 could be in the works.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, VIX, FTR


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.