VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Thursday again S&P futures continued to come under pressure as markets continued to weaken. Today the unemployment numbers were not as good as data points in the past missing estimates. Even more important is the last unemployment numbers were revised up from 348K to now 364K. Tomorrow make sure to be on the lookout for personal spending and income numbers to lead the market higher or lower.

The spot CBOE Volatility Index (VIX) continues to move higher as SPX puts continue to be purchased here. Today the spot VIX moved up more than 10% with the markets off .8%. Volatility ETF (VXX), 2x ETF (TVIX), and alternative 2x ETF (UVXY) were trading again as one with futures heading up. However, throughout the day as futures recovered and buyers stepped in volatility sold off as bids from the SPX just fell off sharply. Futures pricing is listed below.


April VIX futures 17.58

May VIX futures 19.70

June VIX futures 21.35


April VIX futures 17.08

May VIX futures 19.53

June VIX futures 21.28

Options Paper:

Today Apple (AAPL) option paper quickly reversed after opening strong quickly saw large put buyers come into the market as sellers of the weekly calls came hot and heavy into the market. Into the noon hour the market had only traded just over 10M contracts with 500K of those being AAPL. Net premiums showed calls overall being sold and puts being bought which was confirmed as puts were bought 40% of the time on the ask. IV again continued to increase today as players looking for protection continue to come into the market. However a large bullish trade today was a buyer of the May / August 660 call calendar 500 times . This trade would be insanely profitable if AAPL ran to 660 on May expiration and then ran higher into August. Option activity was light in comparison to recent days and today calls outnumbered puts 1.3:1.

Arch Coal (ACI) yesterday showed up on the bullish front and today a large put buyer of the May 10 puts some 5K times. These puts were bought for .61 as the implied volatility continued to rise showing definite buying pressure. This is interesting as later in the day April 11 and May 12 call buyers stepped in buying more than 69% of the calls on the ask. It appears bears and bulls will continue to battle it out on this hotly contested name. Option volume was 2x average daily volume with calls outnumbering puts 1.4:1

Research in Motion (RIMM) is a name readers of my articles know I'm not very fond of. The business is just terrible and appears to continue to get crushed every day by competitive products like Apple's iPhone and any maker of Google's (GOOG) Droid operating system. Today net premiums are giving up on the upside as calls were sold 44% of the time and puts were bought on the ask 44% of the time. This signals some bearish tone going into earnings after the bell tonight. I have been short RIMM and will continue to lean on the short moving forward unless RIMM just blows earnings out of the water. Option activity today was almost 4x average daily volume with large outflows of calls and inflows into puts.

Popular ETF's and equity names with bullish / bearish paper:

Bullish Option Flows / Out of the Money Calls Bought On Ask:

Terex (TEX) 81%

Gold Fields (GFI) 67%

Gamestop (GME) 62%

Fortinet (FTNT) 49%

eBay (EBAY) 46%

Micron (MU) 45%

Bearish Option Flows / Out of the Money Puts Bought On Ask:

JDS Uniphase (JDSU) 85%

Jefferies (JEF) 75%

Live Nation (LYV) 74%

Cummings (CMI) 62%

CIGNA (CI) 53%

KB Home (KBH) 42%

Bank of America (BAC) 34%

China ETF (FXI) 28%

Volatility Explosion:

Kit Digital (OTC:KITD) has seen IV scream to the upside on very heavy volume relative to this name. Today more than 17K contracts traded when only 1,500 trade on average per day. Interesting a May 12.5 straddle went off for 5.85 which the short of this wants KITD to move to 12.50 and stop and the long of this trade wants it above 18.20 or below 6.80. Regardless someone believes this stock is going to move and it will move big. Calls were bought 39% today and puts were also bought 47% on the ask. Keep an eye on the open interest of this name as call and put volume has been building.

Volatility Implosion:

Best Buy (BBY) is a name I've been bearish on for quite some time and today's guidance didn't help the stock price what so ever. After trading down more than 9% at one point IV was sucked out of this name after BBY announced lighter than expected revenues. Option positions were being rolled out all over the place as call sellers of the April 27 and 29 calls rolled out to later strikes. I have been short this name for quite some time but will look to take some profits here on any additional pullback. Option activity was more than 8x average daily volume with puts just outnumbering calls 1.2:1.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!




I own strangles:

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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