Too Many Options: $VIX, $SPY, $S, $CSX, $NS

by Enis June 6, 2014 5:57 am • Commentary

VIX and SPY options were active while single stock options volumes were subdued.  The S&P 500 index closed at another record, and VIX spot remained near 5 year lows (the low print of 11.05 is from March 2013).

1.  VIX – Huge four way trade.  Trader bought 144k of the July 13/16 risk reversals, paying .19 to sell July 13 put and buy July 16 call.  Same trader sold 288k of the July 20 calls at 0.27, and bought 144k of the Sept 20 calls for .94.  This trade looks like a hedge, where the trader wants to have 288k contracts worth of VIX calls, though the July strike was moved lower (and the trader took on the risk of July VIX below 13), and part of the hedge was moved out to September.  VIX spot is on track for its 5th straight monthly decline (though still a long way to go in June), which would be only the 3rd time that has happened in the past 10 years (the other two instances are mid-2009 and early 2012, both coming off of big VIX spikes).  

2.  SPY – Options traded about 1.5x the average 1 month volume.  The weekly 194 calls and the Jun21st 193 calls were the most active lines.  30 day at-the-money implied volatility in SPY closed at 8, its lowest level of the past 10 years.  The Jun21st 194 straddle was priced at $3.50 by the close, implying less than a 2% move over the next 2 weeks.

3.  S – Sprint finally announced a bid for T-Mobile, though market participants seemed skeptical about regulatory approval based on the decline of both S and TMUS on Thursday.  A 3 way trade in the afternoon – seller of 32k of the June 9 calls at 0.33, seller of 32k of the Aug 11 calls at 0.17, and buyer of 32k of the Aug 8 puts for 0.33.

4.  CSX – The August 32.5 calls traded over 20k at an average price of 0.19 throughout the day. Stock closed at a new all-time high after management guided 2nd quarter EPS above estimates at a Deutsche Bank conference.

5.  NS – Trader rolled a bullish bet, selling 8,250 of the Sept 55 calls at 5.20 to close, and buying 15k of the Dec 60 calls for 2.65 to open (nearly premium neutral).  NS closed at a 2 year high, and is up 19% so far in 2014.