VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Wednesday, S&P futures were up slightly trying to digest the recent downturn in the overall market. The NYMO Oscillator closed at -42.79 which is still some 38 points from being an oversold market where I would get crazy bullish. Big news moving the market today was positive earnings out of Panera Bread (NASDAQ:PNRA), Boeing (NYSE:BA), Thermo Fisher (NYSE:TMO), and Facebook (NASDAQ:FB). I had the unfortunate luck of following the huge FB put volume yesterday and financed by selling upside calls. On the positive side I did salvage the trade by buying FB as soon as it went above 20 in the afterhours trading. Not everything was positive though as EMC (EMC), Eli Lilly (NYSE:LLY), and Encana (NYSE:ECA) stocks were hit after poor earnings releases.

The spot CBOE Volatility Index (VIX) yesterday traded above the front month futures for the first time since mid June. The high mark of mid 19s was quickly sold down to the high 17s before heading back near the 18.50 level. Again it must be re-stated the spot VIX is not tradable only the VIX futures. Readers of my articles well know VIX futures are what drive the Volatility ETFs. This is the reason why even with the spot VIX down Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) continued to rise as front month futures continued to rise. VIX futures are below.


  • November VIX futures 18.75
  • December VIX futures 19.08
  • January VIX futures 20.50


  • November VIX futures 18.93
  • December VIX futures 19.23
  • January VIX futures 20.45

Options Paper:

Today some bulls were looking to play WellPoint (WLP), which is interesting considering the weakness in the space. I've mentioned in past sonar reports the bullish plays in UnitedHealth (NYSE:UNH) and Aetna (NYSE:AET), but now it appears some are looking to another player in WLP. More than 4K of the November 67.50 calls traded today all bought on the ask between .58 and .61. This bullish paper is almost a 250K bet WLP will move higher prior to November expiration. Although this is nowhere near as big as the UNH 2 million net delta in calls or the 1+ million in AET calls it is still bullish nonetheless for the space. Calls outnumbered puts more than 180:1 in this name and on very heavy volume.

Another bullish play today was actually on the leisure travel market in Royal Caribbean (NYSE:RCL). RCL has been on a tear of late moving back from the depths of mid 20s back in June. Now a day before earnings bulls are cranking up the heat with a purchase of more than 4300 November 32 calls. These calls quickly exploded causing the ask to rise from .75 all the way to .87 as volatility continues to rise in the name pre-earnings. Calls outnumbered puts more than 20:1 in this name but be careful as previous paper in this name has not been super telling as to which direction the stock will go post earnings.

Stillwater (SWC) has been beat up after recent debt offerings and it appears some bears think the next leg will be lower. The December 10-9 put spread went of 5K x 10K times costing the trader a net debit of only .04. This trade is pretty strait forward; SWC to move to 9 but not below this price on December expiration. Ratio spreads are popular with hedge funds as it allows them to make a directional bet and have huge payoffs with little cash on the table. Although this does tie up some 450K in margin this would have a max payout of over 500K on just a 20K bet if SWC went out at 9.00 on December expiration. SWC had more than 51 puts trade for every one call trade in today's session.

Popular ETFs and equity names with bullish / bearish paper:

Bullish Option Flows

Time Warner Cable (TWC) saw a large seller of the January 87.50 puts today 10K times

Humana (NYSE:HUM) way under open interest but still bullish

Shutterfly (NASDAQ:SFLY) calls moving as volatility expands

Bearish Option Flows

Yen ETF (NYSEARCA:FXY) 32:1 put to call ratio

Owens Illinois (NYSE:OI) 44:1 puts heavy in today's session

Temprur Pedic (NYSE:TPX) put volatility soaring on crazy heavy volume more than 13x average daily volume

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

Disclosure: I am long AET, AGNC, APC, KERX, PSX, SLW, TYC, UNH, WMB. I am short: AMZN, 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.