VIX - Options Volatility Sonar: Tuesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Tuesday, S&P futures were down more than 1% after poor earnings and world news events continued to disappoint investors. Futures traded down of more than 15 handles in the pre-market testing the 1411 level prior to the open. This initially caused investors to dive for cover after the opening bell by reaching for protection buying SPX puts. Although Yahoo (YHOO) and Whirlpool (WHR) both had upbeat guidance and earnings, the market's overall tone was very negative. Another major level in the S&P ETF (NYSEARCA:SPY) was violated today breaking the 141.00 level which is where bulls really need to stand up and defend this level. Although the level was broken the level was quickly reclaimed trading back up to near 142 heading towards the close.

The spot CBOE Volatility Index (VIX) screamed to the upside today rising more than 16.5% in the first hour of trading. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX) and alternative 2x ETF (NYSEARCA:UVXY) responded nicely as they followed the futures higher across the board. VXX 35 weekly calls which were bought just yesterday went from .50 ask to more than 2.60 bid in early trading. Again TVIX and UVXY continue to suffer performance from the structures of the underlying ETFs.

Today was extremely interesting as for the first time in a very long time as the spot VIX actually was above the front month futures. As many of my readers know backwardation is not typical and when this structure is in play the VXX and other volatility plays can be very interesting. Although the VIX futures are still in contango it must be noted the last few times this happened the market corrected an additional 2-3% which would put the S&P right around the 1394 level. VIX futures are below.


November VIX futures 17.90

December VIX futures 18.55

January VIX futures 20.03


November VIX futures 18.75 (Traded up to 19.10)

December VIX futures 19.08 (Traded up to 19.40)

January VIX futures 20.50 (Traded up to 20.85)

Options Paper:

On a big down day it is no surprise some of the big option paper today was bearish. One name Amedisys (NASDAQ:AMED) saw a buyer of the November 11 puts some 2,500 times. This name typically only trades a few hundred contracts a day and option volume is now more than 50x average daily volume. Puts outnumbered calls a blistering 20:1 as some bears position for more potential downside moving into the November 6th earnings release. This name has been in freefall ever since early September and some bears believe a test of the 52 week low of 9.13 could be in store.

Tesla Motors (NASDAQ:TSLA) had an interesting short call roll today in a very nasty tape. The Jan 35 calls were bought almost 12K times and the Jan 2014 40 calls were sold 5K times for 1.90. This appears to be a short call roll which is most likely against a long stock position. I would expect the January 35 calls open interest to drop significantly and the 40 strike calls to increase in open interest. Options in this name have been bullish of late as some possibly position for a rebound in stock price moving forward. Option volume was more than 3x average daily volume in this name with calls outpacing puts 62:1.

Finally another bullish play on a down day was done today in Oshkosh (NYSE:OSK). Today the Jan 30-32 call spread was bought 10K times for a net debit of 0.75. This single block trade is a bullish bet believing OSK will run to or above 32 prior to January expiration. The single block trade cost the purchaser 750K - this is more than likely some institution rolling some profits believing OSK could run to new highs after earnings are released next week. Volume is more than 15x open interest at both strikes and will make more than 150% return if OSK is above 32 in January. I have orders in to play calendar spreads in this name as selling front month volatility will help me to reduce cost here. OSK calls outnumbered puts more than 600:1 on the day.

Popular ETFs and equity names with bullish/bearish paper:

Bullish Option Flows

Netflix (NASDAQ:NFLX) Buyers of weekly 70 calls (I'm still short this name)

Baidu (NASDAQ:BIDU) Weekly 115 and 120 calls heavy today

UnitedHealth (NYSE:UNH) another 10K November 60 calls bought

Short S&P (NYSEARCA:SH) Calls over puts more than 20:1

Bearish Option Flows

SPDR Regional Banking ETF (NYSEARCA:KRE) large blocks in the Jan 28 puts (118:1 put to call ratio)

Denbury Resources (NYSE:DNR)

Barclays (NYSE:BCS)

Delta Air Lines (NYSE:DAL) Big prints in leap January 14 puts.

Facebook (NASDAQ:FB) Weekly 17, 18, and 19 puts more than 76K traded (Posted on Twitter)

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!



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

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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