VIX - Options Volatility Sonar: Wednesday Recap

by: Erick McKitterick

VIX - Market Sentiment:

S&P had some real wild swings Wednesday the day after the Presidential Election. The pre-market had ES futures move from a high of 1431.50 all the way down to 1411 and was continuing to fall heading into the open. Anyone who was following the futures market last night saw they were all over the place moving up and down almost every two hours like clockwork. Yesterday the NYMO Oscillator closed with a reading of 5.09 a 21.84 increase from the day before. Remember oversold market is -80 or 80 so we still have a long way to go before we could get an "Oversold Bounce" or "Overbought Pullback".

On the news and earnings front Tuesday night Rackspace (NYSE:RAX) reported numbers which were in line with estimates. For those who follow my trades on Twitter saw I went short RAX last night before the close after more than 600K worth of puts versus just 100K of premium in calls traded which caused me to short the stock via put spreads. I exited the trade today as RAX traded lower and booked a few gains. Other news putting pressure on the markets came out of the Eurozone as Germany reported weak industrial output for September. To make things worse German advisors then announced debt problems hurting growth in 2013 slashing GDP estimates.

The spot CBOE Volatility Index (VIX) shot higher as markets began to digest the news of President Obama being re-elected to a second term. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) traded higher following futures much higher across the board. The structures of these ETF's will begin to get more interesting to the long side if we truly do move back into backwardation. As I pointed out in yesterday's sonar report (here) large buyers of the front month VIX 16 puts drove premiums way down. We will see if the buyer of these puts continues to keep the trade on or exit the position outright. Regardless one who is in the market should be very nimble right here as the market could turn on a dime higher or lower. An interesting note today regarding the VIX as the CBOE halted trade on all months which resumed at 2:15 EST. I personally have never seen VIX futures halted so this is very surprising to me. VIX futures are below.


  • November VIX futures 17.00
  • December VIX futures 17.83
  • January VIX futures 19.28


  • November VIX futures 18.40
  • December VIX futures 19.05
  • January VIX futures 20.33

Options Paper:

As reported on the sonar last week (here) a play from last week Tenet Healthcare (NYSE:THC) saw some large call buying ahead of earnings. The call buyers of those November 25 calls last week just got paid as premium exploded from .75 to now trading more than 1.60 bid. It appears the trader spread this to now hold the 25-26 call spread for a credit of .30. Today 5K of the November 26 calls were sold for 1.05 reducing the cost of the trade to a .30 credit and will now profit the trader more than 650K if THC closes above 26 on November expiration. Even if THC cratered from here the trader will still make 150K on the trade as the call spread is not effectively a credit. Call options now outnumber puts 28:1 but the majority of calls are sold against other spreads or long stock. THC rose 5.9% in today's trading on almost 10x average daily volume.

Apple (NASDAQ:AAPL) today continued the slide lower trading down more than 3.2% just after the noon hour. However 4 large put sales went off at 10:59, which has me intrigued. The February 525, 530, 545, and 550 puts were all sold on the bid 1K times each where the trader collected a whopping 45M+ in net premium from the sales of the put spreads. This is by far the largest single trade in terms of AAPL as it effectively would force the short side of the puts to buy AAPL 4 million times at an effective price of ~525.00 if you include the premium collected. To make things even more interesting less than an hour later 2 huge bullish bets were placed on AAPL. One trade the February 580-680 call spread was bought 2K times for a net debit of 24.20 costing more than 4.8M. The second trade was the February 610-700 call spread bought 2.5K times for a net debit of 15.20 again costing the same trader another 3.8M for a total of 8.6M in premium. This is more than likely the same trader who collected the 45M by selling the puts who is looking for AAPL to return to previous highs before February expiration. If by some chance AAPL did close above 700 on February expiration the call spreads alone would make 42.5M for this trader and would also collect the 45M in short puts minus the 8.6M in premium he spend on the call spread. This would net the trader a whopping 78.9M in profit on this single trade. Because of the sheer magnitude of this trade this is not some mom and pop option shop do the road. The person who put on this trade more than likely has multiple billions and is willing to bet AAPL will rebound before February. Just remember before you go spending your life savings on AAPL calls here remember being big does not always make you right. (See the GRPN note below)

(Click to enlarge)

Statistics Provided By LiveVol

On a very downbeat tape today not one but two big trades went off on Groupon (NASDAQ:GRPN). Today around 9:50 the Jan 2014 5 strike calls were sold 30K times for .95 against open interest. Less than 30 minutes later 30K of the April 4 strike calls also appear bought for .80 possibly closing both positions. The April calls appear to have been bought back on Oct 25th and the January 2014 calls on Oct 31 both for 1.15 to 1.20 and in just a few short trading sessions now appear to be closing the position. The April appear to have taken a near 33% loss and the January around a 20-25% loss costing a net total 1.2M on the one trade and almost 1M on the other. This goes to show although options can sometimes tell where big investors are putting money to work it does not always make them right.

CBS (NYSE:CBS) today also caught my attention after a single print of 15K November 35 strike calls were bought for .50 ask. This was clearly buying pressure as more than 750K of premium was purchased in the single block. CBS is set to report so volatility is already high in this name. I posted my trade on Twitter stating I was synthetic long vat the 34 line and also long via a 1:3 34-36 call spread trying to play for a vol collapse post earnings tonight. Call options in this name outnumbered puts more than 10:1 on the day with CBS options trading more than 5x average daily volume.

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

Bullish Option Flows - OTM calls bought on offer

  • Miners ETF (NYSEARCA:GDX) 53K calls bought OTM on the ask out of 87K
  • Continental (NYSE:CLR) 54%
  • Kinross Gold (NYSE:KGC) 47% of 4.8K traded options

Bearish Option Flows - OTM puts bought on offer

Amarin Corp (NASDAQ:AMRN) 63% bought on ask

Globe Specialty Meta (NASDAQ:GSM) 3K bought on ask

Zynga (NASDAQ:ZNGA) Downward pressure continues

Time Warner (NYSE:TWX) Big recovery off lows some people hedging longs

As always happy trading and stay hedged.

Remember equity insurance always looks expensive until you need it!


  • I am long: AAPL, AGNC, APC, CBS, KERX, WLL
  • I am short: FE, FXE, FXY, SPY
  • Trades today:
  • Bought AAPL, KERX, CBS
  • Sold some of SPY puts and SDS hedges

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.