VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment

Thursday S&P futures continued their push higher with retail sales numbers coming in at alarming rates and almost all were positive surprises. Even with unemployment claims and ISM numbers which did not beat forecasts the retail sales lifted the markets and helped push gains today. We continue to push against resistance of 1375 and if we continue this move the next stop could be 1415 or 1425 in the S&P.

The spot CBOE Volatility Index (VIX) continued to melt today as a lack of fear continues to dominate the volatility markets. The S&P index is trading at an incredible 100% premium to current realized volatility so for anyone to profit on "long volatility" plays the drop would need to be hard and deep. This is perfectly shown in the volatility ETFs (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) as futures continue to slump in response to the overwhelming bull market over the first 2 months of this year. VIX futures are listed below.


March VIX futures 21.00

April VIX futures 23.90

May VIX futures 25.53


March VIX futures 20.30

April VIX futures 23.48

May VIX futures 25.15

Today the Treasury market finally agreed with the rally as both the Ultrashort Treasury ETF (NYSEARCA:TBT) and Long Treasury (NYSEARCA:TLT) both traded as one would expect on an up .7% trading day. Interestingly the U.S. dollar ETF (NYSEARCA:UUP) and the euro ETF (NYSEARCA:FXE) were both slightly down going into the close. Typically we rally hard when the FXE rallies hard, but today appears to somewhat diverge from this trend. Option volume going into the final hour was just over 11M contracts which has trading option paper anemic by any standard. The Apple (NASDAQ:AAPL) option paper continues to be crazy accounting for more than 6% of all option paper in the trading day.

Options Paper

Interestingly a large S&P Cash (SPX) roll today saw a purchase of 24K of the weekly 1150 S&P cash puts. This seems almost insane as this would take more than a 10% drop between now and next Friday for this bet to pay off. The trade went off in a few prints with the majority of the at .15. This ~360K bet would explode to the upside with a market sell-off but appears to me long shot short against a meltdown between now and next Friday. Although I agree overall we need a market pullback to remain in a healthy uptrend this takes it to the extreme.

Monster World Wide (NYSE:MWW), the online career hub, today saw a flurry of the March 8 calls which expire in just under two weeks. The eight calls were bought for .10 to .20 in addition to March 7 calls also being bought. Interestingly these calls exploded to the upside as the buyer of these calls then around 1:08 pulled the rip cord selling the calls down hard from .70 down to .30 in less than nine minutes. Overall calls outnumbered puts 7:1 on the day with calls overall bought but as the day progressed the calls were sold down as the traders exited the positions after the run.

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

Calls outnumbering puts:

Centruytel (NYSE:CTL) 65:1 (Dividend steal don't read into the 680K call options traded)

Dyco International (NYSE:TYC) 52:1

Spectra Energy (NYSE:SE) 34:1

KBW Regional (NYSEARCA:KRE) 28:1

Legg Mason (NYSE:LM) 24:1

TD Ameritrade (NASDAQ:AMTD) 21:1


Dana Holding (NYSE:DAN) 51:1

Puts outnumbering calls:

Momenta Pharma (NASDAQ:MNTA) 86:1

Host Hotels (NYSE:HST) 35:1

Hong Kong ETF (NYSEARCA:EWH) 25:1

Homebuilders ETF (NYSEARCA:XHB) 17:1

Qihoo 360 (NYSE:QIHU) 15:1


Ultra Financials (NYSEARCA:UYG) (Interesting with FAZ activity yesterday)

Bunge Ltd (NYSE:BG) 8:1

Kroger (NYSE:KR) 9:1

Toll Brothers (NYSE:TOL) 6:1

Volatility Explosion

Research In Motion (RIMM) today saw volatility shoot up as the maker continued to break down as large weekly put buyers came rushing int. The weekly 15 puts were sold and rolled down to the 14 puts expiring next week. This was done another 4K times so it will be interesting to look at open interest tomorrow and see just how many contracts are still outstanding. On the flip side of this some call buyers stepped up as well today looking for a move higher in the April and May time frames. Overall options activity was more than 1.4x average daily volume.

Volatility Implosion

BroadSoft (NASDAQ:BSFT) was a name I went short yesterday prior to earnings and today I'm crying even as implied volatility came screaming out of this name. Late in the day a large buyer of the April 40 puts came in paying 6.00 offer for them more than 1.2K times. I followed this trade doing a monthly diagonal spread and I'm down significantly. At the open I was actually up when BSFT was down more than 2% only to reverse and rally more than 5.5% throughout the day. Largest trades today were actually bullish as calls outnumbered calls almost 2:1 with May 45 calls very active throughout the day.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, PCLN

I am short: PBI, FXE, DB, EEM, AAPL, LYV, BSFT

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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