VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday futures were mixed with the S&P trading in a tight 5-6 point range early. The futures traded down to 1421 before bouncing back on positive notes on both Caterpillar (NYSE:CAT) and Cummings (NYSE:CMI). Last Friday saw volatility return to the market as the NYMO oscillator moved from a +14 to -18 in a single day. This is one of the largest moves in recent weeks but is still nowhere near an "oversold" market.

The spot CBOE Volatility Index (VIX) trended flat early as the market began to digest the move from last week. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX) and alternative 2x ETF (NYSEARCA:UVXY) were initially pushed lower but as front month futures began to rise so did the ETFs. Although I do not like to use daily moving averages when it comes to the VIX everyone else loves to talk about it and the truth is the way the VIX and market are tracking this could get real ugly real fast. VIX futures are below.


November VIX futures 17.50

December VIX futures 18.30

January VIX futures 19.90


November VIX futures 17.90

December VIX futures 18.55

January VIX futures 20.03

It is important to note today appears to be the first day where we will close below the 50 day moving average. The VIX is perking up and combine this with the continued outflows of funds the market feels very heavy here. A significant close below 1428 on the S&P combined with the poor earnings thus far could have this market re-testing the 100 dma at 1394 or even the 200 dma at the 1380 level in a heartbeat. Hedging here is very difficult in comparison to last Wednesday. Volatility has soared on a relative basis but outright S&P ETF (NYSEARCA:SPY) puts and Leveraged Short ETF (NYSEARCA:SDS) appear to sill be the best bet here to hedge long positions.

Options Paper:

Today the paper was crazy bullish on health insurers with both United Health (NYSE:UNH) and Aetna (NYSE:AET) both getting large bullish bets. First UNH saw more than 10K of the November 55 calls bought sending premiums soaring from 2.10 to more than 2.30 in a few minutes. This $2.1 million trade which complimented the AET trade where another 10K block of November 45 calls was bought again placing some big money into health insurers. Calls outnumbered puts in an extreme way on both of these names by almost 100 calls to every put traded. Because volatility and premiums rose after so these defiantly appear to be bought.

Energy stocks have been crazy bullish of late but today one trader put on a pretty good size bearish bet. First Energy (NYSE:FE) hit the 100 dma and dropped like a rock and it appears bears are looking for more. 7K of the November 45 puts traded today with the largest block 6K going off for .70. Total options in this name typically only trade 480 contracts a day so this paper is defiantly interesting. Remember FE reports earnings and has a dividend prior to the November contracts expiring. Implied volatility is cheap in this name so I bought the puts outright and will look to spread on any drop or rise in IV.

Monster Beverage (NASDAQ:MNST) today saw early call selling followed by heavy put buying. This happened after negative FDA reports showed as many as five people have died after consuming the company's energy drinks. There may have been a tip off on this name as volatility screamed to the upside just minutes prior to the release where the stock was down some 13% at one point. Front month put spreads could be a very profitable venture for those willing to stomach the risk. More than 23K puts had traded as of the writing of this article.

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

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

Ann Ord Shares (NYSE:ANN) 93%

Sina (NASDAQ:SINA) 81%

Ocwen Financial (NYSE:OCN) 81%

OpenTable (NASDAQ:OPEN) 79%

Bearish Option Flows

Microchip (NASDAQ:MCHP) Puts more than 150x average

DeVry (NYSE:DV) 8K puts trade vs average of 522

Overseas Ship (NYSE:OSG) Stock destroyed today as company flounders more than 30K puts traded.

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!



I am short: FXE, FXY, FE, NFLX, AMZN

Follow me and my trades on twitter @Keddie

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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