VIX - Options Volatility Sonar: Friday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Friday, S&P futures were definitely moving in the pre-market, as futures moved 15 handles top to bottom. The high point in the futures was 1409, with the low moving down way below the levels from yesterday -- all the way down to 1394. This is the first bounce level I have been speaking about for the last few days, so it is no surprise we bounced and went back to 1400 in the pre-market. The NYMO Oscillator rose yesterday to -30.93, but remember, an oversold condition would be -80.00, so we have a long way to go to hit these levels. Weighing on the market was Amazon (NASDAQ:AMZN), which reported its first quarterly net loss in more than five years, combined with Apple's (NASDAQ:AAPL) miss on analysts' expectations. Not everything was negative -- look at both Oshkosh (NYSE:OSK) and Expedia (NASDAQ:EXPE). Again, this shows you how options can tell where a stock may go. As posted earlier this week, OSK and Royal Caribbean (NYSE:RCL) saw some heavy call buyers earlier in the week, and these options have exploded to the upside. Even heading into earnings yesterday, EXPE saw a large January 48/50 call buyer who bought more than 12K calls above the ask and is going to get paid after a blowout quarter.

The spot CBOE Volatility Index (VIX) was all over the place today. Initially, the oscillator dropped to the 17.64 mark before rebounding to the 18.60 level heading into the noon hour. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were mostly flat, with futures rising just slightly to offset the poor structure these ETFs use. Call buyers were huge in yesterday's trading, as more than 9 million in call premiums was either taken home or closed out as people continue to look for protection to the down side. VIX futures are below.


November VIX futures 18.33

December VIX futures 18.85

January VIX futures 20.18


November VIX futures 18.60

December VIX futures 19.10

January VIX futures 20.40

Options Paper:

After a reporting a terrible forecast, it appears United Parcel (NYSE:UPS) has some bulls believing it's ready to move higher. The bulls came in full force today, buying 10K of the April 75 calls for a total purchase premium of just under 2M. UPS had a slight pop even after the forecast was lowered earlier this week, but the bulls are not giving up. Although options volume was actually below average in this name today, the large block buying of the April 75 calls should be noted for those looking to get bullish the name.

In a crazy tape today, media play AOL (NYSE:AOL) saw the purchase of 4,500 of the November 34 puts against open interest of 3.3K. The put buying in this name has intensified of late, and it appears bears want to slap this down as it approaches the moving averages. Puts outnumbered calls more than 200:1 in this name, and it is important to note the majority of calls appeared to be sold. If one is long this name, options are saying the next leg is down, so hedges should be in place.

Another bullish play today was done in low liquidity name CarMax (NYSE:KMX). Today, it was moving higher on positive notes out of Credit Suisse, and it appears the bulls are ready to run. At the time of this writing, almost 4K of the 34 November calls were bought, moving the premium up from .38 to a high of .80. Options volume in this name was almost 6x average daily volume, with calls outnumbering puts more than 125:1

Popular ETFs and equity names with bullish/bearish paper:

Bullish Option Flows

Mylan (NASDAQ:MYL) big call buyer on heavy volume

Kinder Morgan (NYSE:KMI) calls bought in large blocks (Dividend play)

Varian Medical (NYSE:VAR) more than 10x average calls

Bearish Option Flows

VeriSign (NASDAQ:VRSN) huge call selling almost 131x average daily volume

Activision (NASDAQ:ATVI) big put buying today

Disclosure: I am long AGNC, APC, KERX, PSX, SLW, TYC, UNH, WMB. I am short FE, FXE, FXY. Closed short: AMZN, 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.