VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment

On Monday S&P futures were under pressure after weak Chinese data and weak numbers out of Europe weighed on the markets. U.S. ISM numbers had yet another positive surprise which helped the markets but for the first time in what seems forever we actually were trading under the 10-day moving average. Again bulls are trying to defend the accelerated uptrend channel which currently has the S&P sitting at 1363.44 where consecutive closes below or extended periods below there could spell trouble in the short term.

The spot CBOE Volatility Index (VIX) spiked hard today moving toward the 19.00 level before fading back toward the 18 mark. Extremely interesting today was the lack of the reaction in the VIX futures. Spot VIX was up more than 7.5% at one point today with VIX futures up .1%, which had holders of volatility ETFs (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) crying. VIX futures actually turned lower on the day just after the 3:00 mark. VIX futures are listed below.


March VIX futures 20.50

April VIX futures 23.70

May VIX futures 25.40


March VIX futures 20.40

April VIX futures 23.68

May VIX futures 25.38

Apple (NASDAQ:AAPL) again lead total option volume today trading more than 5% of total contracts moving into the 3:00 hour. Total contracts totaled less than 12M as of the writing of this article which continues to show the light option paper in this market. Ultrashort Treasury ETF (NYSEARCA:TBT) and Long Treasury (NYSEARCA:TLT) showed money moving back into treasuries which is surprising considering the price action of the market of late. Even more interesting is the reaction of the U.S. dollar ETF (NYSEARCA:UUP) and Euro ETF (NYSEARCA:FXE). Both of these would signal a slight up day in the market and possible positive moves in Gold ETF (NYSEARCA:GLD) and Silver ETF (NYSEARCA:SLV). However, this was not the case as these continued to weaken. A good size SLV bull today did buy the March 2013 40-50-60 call butterfly 7K-14K-7K times today. This cost the trader .95 to put on the trade just after 10:40 which would more than 10x his money if SLV pinned to 50.00 March of next year. The 665K bet would expand to 7M March of next year. Overall short term option paper however does remain very bearish in this name.

Options Paper

Biotechs have been crazy active of late and today was no different. Today after a blog posting stating the market has not realized the potential of AEterna Zentaris (NASDAQ:AEZS) and Keryx (NASDAQ:KERX), the names saw some serious volume. AEZS does not trade options so this name I just can't play with but KERX does and this is where it gets interesting. Today more than 45K options traded with calls outnumbering puts 1.5:1. The biggest trades were some people dumping puts to buy calls as the stock soared more than 34% in today's trading. Overall net premium's show calls being bought and puts sold but with out of the money calls being very popular. Options volume was more than 20x average daily volume in today's trading. I'm looking to follow this bullish activity by doing a risk reversal selling puts to buy some upside call spreads.

Seagate (NASDAQ:STX) saw some slight bullish activity come in with a buyer of the April 30 calls. More than 8K of the calls traded today raising premiums significantly. The stock has been on an absolute tear and has heavy resistance at these levels but it appears at least one bull thinks it can be done. STX calls outnumbered puts almost 4:1 today but on very light volume. Look for future paper to confirm this move.

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

Calls outnumbering puts:

Pioneer Natural (NYSE:PXD) 18:1

Nisource (NYSE:NI) 18:1

RF Micro Devices (RFMD) 16:1


Electronic Arts (NASDAQ:EA) 33:1

Dollar General (NYSE:DG) 34:1

Campbell Soup (NYSE:CPB) 36:1

Express Inc (NYSE:EXPR) 53:1

Statoil (NYSE:STO) 102:1

Puts outnumbering calls:

Key Corp (NYSE:KEY) 4:1 (Buyers of the April 7 puts)



CarMax (NYSE:KMX) 8:1

Comcast (CMSCA) 5:1

Japanese Yen ETF (NYSEARCA:FXY) 15:1

Industrial ETF (NYSEARCA:XLI) 13:1

Volatility Explosion

Sequenom (NASDAQ:SQNM) saw a large spike in IV today as IV30 has now crossed the 80.00 for the first time in a long time. This was a speculative play we tried back in January which worked well before selling off hard around the 5.00 level. Today the market punished the biotech stock trading down more than 9% at one point. Interestingly the majority of the option action initially was put buying and call selling. Then right around the 1:00 mark some people came in buying January 7.5 calls as a long-term speculative play. I again am looking at a possible risk reversal on this name. Calls today outnumbered puts almost 5:1 as some players look for this to possibly rebound.

Volatility Implosion

Sears Holdings (NASDAQ:SHLD) in an interesting move saw IV come down more than 10% to the 75% level. Again option activity continues to be heavy in this name trading almost 2x average daily volume. Bears and bulls continue to battle in this stock which has had a massive run of late. The biggest trades today were traders betting on a pullback as the March 80-70 put spread was clearly bought as the 80s were bought .35 over ask and the 70s sold for .13 under bid almost 1K times. Net premium shows calls continuing to be accumulated but put inflows were almost 2x of calls. Regardless this name is going to continue to move as option players position for some big moves as even the weeklies were active.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


I am long SDS, APC, TBT, FAZ, KERX


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.