VIX - Options Volatility Sonar: Thursday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Thursday, S&P futures continued the trend of pointing higher after positive numbers out of the ADP jobs report. The ADP Non-Farm Employment numbers came in at 158K, which was 20K more than the analysts expected. This positive news sent the SPX above 1420, which was trying to hold heading into the noon hour. This trading is typical for first day of the month pop as large investors put new money to work. The NYMO Oscillator rose yesterday to -25.77 , which continues to tell us the market is somewhat weak, but nowhere near in "Oversold" territory.

Some news effecting stocks today included financial stocks Visa (NYSE:V) and Mastercard (NYSE:MA), which both saw lifts in their stock prices after positive earnings announcements. In other news, Avon (NYSE:AVP) earnings were not at all positive, but the market continued to support higher prices. Interesting action, however, on Dollar Thrifty (NYSE:DTG) as they beat on earnings, revenues and guidance above FY12 EPS, but the stock sold off down more than 2%. Many companies have delayed releasing their results due to the storm earlier this week, with Equinix (NASDAQ:EQIX), and TripAdvisor (NASDAQ:TRIP) set to report after the bell today.

The spot CBOE Volatility Index (VIX) moved sharply lower as markets rose on the positive economic news. VIX front month futures were sold off hard as those who were worried about a bad ADP print sold front month volatility. Because of the structure, volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) were also crushed as contango remains in effect. One large trader today shorted 7,000 of the December 60 calls, collecting a premium of just over 210K if VXX is below 60 at December expiration. Other big trades in the VIX pits today were rolls of positions out of November and December. They took these positions and opened new positions in January and February. Keep an eye on open interest to confirm these rolls. VIX futures are below.


November VIX futures 18.45

December VIX futures 19.13

January VIX futures 20.28


November VIX futures 17.23

December VIX futures 17.98

January VIX futures 19.20

Options Paper:

Paper was all over the place today, mostly lead by bullish paper prints. Today, option volume returned much more to normal than yesterdays pathetic trading day. The healthcare theme continued today with Tenet (NYSE:THC) finding a buyer of the November 25 calls, paying .75 to .80 more than 2,500 times. This name is thinly traded, so to see option volume more than 10x average daily volume puts it on my radar. The call buyers are probably expecting THC to possibly run into its Earnings release next Wednesday and thus, that is why they are buying today, while volatility is still somewhat low. Calls outnumbered puts more than 100:1 in this healthcare name.

Another play today was a bullish bet on (NASDAQ:OSTK), where the highly shorted name got some love. Today more than 2,000 of the March 15 calls were bought, costing the trader more than 300K in a single block. This name screamed higher after earnings beat expectations a little over a week ago, and it appears the bulls are looking for more of a short squeeze between now and March. Option volume in this name was almost 10x average daily volume, with calls outnumbering puts more than 10:1.

Popular ETFs and equity names with bullish/bearish paper:

Bullish Option Flows

Lumber Liquidators (NYSE:LL) 800K buyer of the Dec 55 calls

Activision Blizzard (NASDAQ:ATVI) Buyer of Dec 12 calls as a possible Call of Duty Release run-up

Monsanto (NYSE:MON) saw large block call buyers in the Nov 87.50 strike

ConAgra (NYSE:CAG) large call buyers towards end of day -- I followed them

Bearish Option Flows

Western Union (NYSE:WU) put volume more than 15x as investors run for cover

TripAdvisor (TRIP) Just one day after a good size bullish bet, 16K of Dec 26 puts bought



I am long straddles: LNKD

Closed Long: N/A

I am short: FE, FXE, FXY, SPY

I am short strangles: 2x LNKD

Closed Short: N/A

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.

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.