VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment

Wednesday, S&P futures continued the accelerated uptrend holding all key levels with the 10-day moving average now sitting at 1,392. Futures pulled in slightly going into the open as cautious traders feared the Bernanke testimony and existing home sales which were released at 10:00 missing forecasts. As stated before in previous sonar articles the next real hurdle for the market's recent run comes here - near 1,425 and 1,444 levels is where heavy resistance will come into play.

Welcome to settlement Wednesday. The CBOE Volatility Index (VIX) cash futures contracts are paid based off of the opening price today. The March VIX cash settlement price was 14.55 a full one point lower than what the spot went out at yesterday. This again appears to be large players playing with the VIX as the SPX puts at the open were almost non-existent. However, after the first print the SPX put bids came rushing back which corresponds to the quick rise in the spot VIX today in the first 30 minutes of trading. Volatility ETF's (NYSEARCA:VXX) and 2x volatility (NASDAQ:TVIX) again took it on the chin as volatility ETFs continue to be sold and shorted by everyone across the board. VIX futures are priced as shown below.


March VIX futures Settlement 14.55

April VIX futures 19.93

May VIX futures 22.73


April VIX futures 18.53

May VIX futures 21.38

June VIX futures 23.10

VIX paper was really moving today trading more than 1M contracts. The selling of volatility was huge today when a seller of the April 23-28 call spread went off some 30K times and more interesting was buyers of the May 17-14 put spread 40K times. The April calls are being sold down hard as people continue to believe in this rally and that it could continue. Interesting today was the lack of rotation which has been dominant in recent trading. Specifically the treasuries continue to gain which could be nothing more than a bounce from oversold conditions. Treasury ETFs (NYSEARCA:TLT) and 2x inverse (NYSEARCA:TBT) both signaled early signs of weakness in the market which was somewhat realized going into the close. This was of course directly countered by the lack of VIX spikes so the direction is tough here.

Options Paper

Whole Foods (NASDAQ:WFM) saw put activity explode today, trading more than 18x average daily volume. Today the April 80-75 put spread was bought 17.5K times for a total cost of .52. This 900K plus bet is a bearish bet against WFM after the recent run from 70 before topping out around 86. Puts outnumbered calls more than 24:1 on the day today with the single trade accounting for more than 95% off all puts traded today. Watch to see if WFM can continue to hold the 82 level as some other bears could pile in around this level.

Baidu (NASDAQ:BIDU) saw a very large surge of call activity early today, buying the weekly 140 and 145 calls off the shelves like wildfire. Option activity exploded in this name today with calls being bought 45% of the time and puts being sold 42% of the time showing extreme bullishness. Calls outnumbered puts almost 3:1 on the trading day on almost 2x average daily volume.

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

Calls outnumbering puts:


Tyco International (NYSE:TYC) 1097:1 (Only 1 put traded today)

Sealed Air (NYSE:SEE) 142:1

Nisource (NYSE:NI) 22:1

American Eagle (NYSE:AEO) 21:1


Two Harbors (NYSE:TWO) 80:1 (Dividend Steal no read here)

Puts outnumbering calls:

Amgen (NASDAQ:AMGN) 7:1

Live Nation (NYSE:LYV) 275:1 (Open interest continues to be a key indicator here)

Jive Software (NASDAQ:JIVE) 19:1

Aetna (NYSE:AET) 9:1

MedcoHealth (NYSE:MHS) 12:1 (Heavy put activity but hard to tell if April put spreads were bought or sold)

Volatility Explosion

Lions Gate (LGF) has seen volatility explode and today was no different. IV screamed up another 14% going out at a new 52-week high of almost 79%. Today buyers of the calls were the top 20 trades on the day which was also confirmed by positive net premium on the call side. When it comes to smaller blocks it appears some smaller investors are betting on a pullback thinking LGF has went too far too fast but normally these investors are the ones who get hurt the worst. Option activity was more than 10x average daily volume with calls outnumbering puts 5.4:1.

Volatility Implosion

Yesterday's sonar mentioned Netflix (NASDAQ:NFLX) on the IV explosion after we saw a large weekly trader sell the 105 puts to buy the 115 - 120 call spread and boy did that trade pay off. Now those who got long yesterday are now up more than 5x their money overnight as NFLX rallied back to the 120 level. Upside weekly call buyers of the 120-125 also stepped in today as those traders continued to roll higher strikes today betting on a continued run. NFLX price action was strong today and calls inflows were positive on a net premium basis where net premiums showed puts mostly being sold. The percentages also confirm this with calls bought 39% of the time and puts sold 39% of the time. Option activity was less than average today but call inflows are interesting here along with the IV drop of more than 5% in today's trading.

Oracle (NYSE:ORCL) also saw a large decrease in IV after reporting good software sales but hardware lacking. ORCL traded down on the day and option players were unloading. ORCL has traded in a very tight range but a few bulls stepped in today with the largest trades in the June 27, 29, and 32 strikes. Puts and calls were sold on the bid more than 45% of the time so it appears some bulls are taking a breather in this name. Option activity was almost 5x average daily volume.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it.


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

I am short: PBI, DB, AAPL, LYV, YHOO

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.

About this article:

Tagged: , Options, SA Submit
Problem with this article? Please tell us. Disagree with this article? .