VIX - Options Volatility Sonar: Monday Recap

by: Erick McKitterick

VIX - Market Sentiment:

Monday, S&P futures drifted lower after world markets showed mixed results with Chinese services down. Markets continue to digest earnings and negative Europe news as Spanish Unemployment numbers came in much higher than expected at 128.2K. Futures opened at the low of the night at 1402 before trading just higher to 1409 which is a very tight 7 handle move. All eyes appear to have shifted back to politics as the election being held Tuesday could prove pivotal. The NYMO Oscillator closed with a reading of -19.03 yesterday which prices in the terrible close from Friday. It is important to note again oversold market is -80 so we still have a way to go before we could get an "Oversold Bounce".

Today companies reported mixed numbers across the board. Time Warner (TWC) profit missed estimates by a mile but on the other side Pharmacyclics (PCYC) crushed estimates. Other notable earnings was Humana (HUM) which beat on earnings but missed on revenues. As earnings season continues to roll through remember volatility typically much cheaper 5-7 days before they report. Buying protective puts or selling calls against long positions the day before or minutes before an earnings release is not the best play.

The spot CBOE Volatility Index (VIX) moved more than 4% higher after continued downward pressure on the market caused funds to continue to reach for SPX puts. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) traded higher after futures began to rise. Unfortunately for those long volatility ETF's the gains may not hold for long as the term structure will continue to put downward pressure on these stocks. Although the spot VIX is currently in backwardation over the front month futures, what we really need to see front month futures above back month for these ETF's to really shine. VIX futures are below.


  • November VIX futures 17.53
  • December VIX futures 18.40
  • January VIX futures 19.80


  • November VIX futures 17.80
  • December VIX futures 18.65
  • January VIX futures 19.95

Options Paper:

Today bears stepped in and decided to target Moody's Corp (NYSE:MCO). Today more than 400K of puts came pouring in around 10:07 today buying the December 45 puts for 1.08. This is interesting because MCO typically only sees 1.7K of options trade all day and more than 3.8K went off in the puts in a single block. Puts outnumbered calls more than 17:1 on 4x average daily volume. MCO fell more than 3% heading into the noon trading hour.

Long time favorite of the sonar eBay (NASDAQ:EBAY) has ripped higher this year. As many of my readers know I have been in and out of this name several times. Today is getting me more interested to the upside yet again after 4,500 of the December 49 calls for 1.94. A strait up 900K bet to the upside tends to get me excited. Although not huge in a name which typically trades 25.3K options a day it is a bullish play on EBAY. Overall the calls today did outnumber puts more than 3:1 but volume was light and therefore I will keep this on my radar for any additional activity moving forward.

Robert Half (NYSE:RHI) today saw some very odd options activity. Today the 30 strike calls were bought more than 3.5K times today. This is crazy interesting as the total open interest in all strikes is less than 600 and this name only trades 20 contracts per day. At the time of this writing calls traded 3,779 against not a single put trading. With option activity more than 1,000 times average daily volume this is interesting to say the least. Be careful as because this name is so thinly traded spreads on bid / ask are very wide so make sure to use limit orders or spreads to take advantage of the volatility increase.

Ebix Inc (NASDAQ:EBIX) had investors cringing today after dropping more than 40% after reports the SEC is investigating the company's accounting practices. This caused IV to scream to the upside moving from 50% to more than 140% in trading today. This was met quickly with volatility sellers stepping in selling puts in order to buy calls early on believing the move was overblown. However, this sentiment was quickly reversed as net premiums show call premiums taken home to the tune of 200K and call premium also positive at 37K. Today puts outnumbered calls more than 3:1 on more than 20x average daily volume.

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

Bullish Option Flows - OTM calls bought on offer

Bearish Option Flows - OTM puts bought on offer

  • Clearwire (CLWR) 91% or 6.5K
  • Banco Brades (NYSE:BBD) 91% of 2.2K
  • Suntrust Bank (NYSE:STI) 81% of 2.5K
  • Ford Motor (NYSE:F) 14.8K puts bought
  • Arch Coal (NYSE:ACI) puts bought overall as people position for Presidential Election

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!

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.

I am long: AGNC, APC, CAG, KERX, SLW

I am short: FE, FXE, FXY, SPY

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.