VIX near critical low: What do options say?

Prominent option activity with depressed VIX

Most traded options as VIX targets 10.0 for first time in seven years

As the equity market creeps higher into virgin territory, portfolio managers have one eye on the CBOE volatility index. On Tuesday both stocks and the so-called fear gauge rose with VIX adding 1.32% to 11.51. Last week’s close at 11.36 marked a 14-month low-point which at the time was the lowest since March 2007. It was in February of that year that the VIX last traded below 10.0. We all know what happened next. We thought it would be interesting to compare the current group of most actively traded options with those from around the time VIX was trading around these levels. The results are interesting.

Many of the stocks whose options offer deep pools of frenzied liquidity today were not even on the radar screen back in 2007 when the VIX last traded beneath 10.0. Some of yesteryear’s most active series have dropped right off the map altogether. We took stocks with the highest average options volumes in the 20-days before the VIX last traded below 10.0 and compared them to stocks with highest current 20-day average option volumes.

TABLE – Companies in bold have maintained prominence among option traders

2007

Avg vol

2014

20-day Avg

APPLE INC

         163,038

APPLE INC

         420,275

CONOCOPHILLIPS

         162,661

FACEBOOK INC-A

         352,036

MOTORS LIQUIDATION CO

         145,735

BANK OF AMERICA CORP

         273,087

MICROSOFT CORP

         132,334

MICROSOFT CORP

         140,765

GOOGLE INC-CL A

         118,543

YAHOO! INC

         121,017

CISCO SYSTEMS INC

         104,360

NETFLIX INC

         103,457

EBAY INC

           94,459

PFIZER INC

         102,680

INTEL CORP

           88,152

MICRON TECHNOLOGY INC

           99,829

YAHOO! INC

           87,938

CISCO SYSTEMS INC

           83,892

QUALCOMM INC

           85,545

AT&T INC

           82,661

ALTRIA GROUP INC

           77,384

AMAZON.COM INC

           69,882

BRISTOL-MYERS SQUIBB CO

           77,376

FORD MOTOR CO

           64,012

PFIZER INC

           76,190

CITIGROUP INC

           59,532

BROADCOM CORP-CL A

           73,481

INTEL CORP

           59,146

GILEAD SCIENCES INC

           72,749

EXXON MOBIL CORP

           56,973

ADVANCED MICRO DEVICES

           68,000

EBAY INC

           52,844

CUMMINS INC

           67,530

GENERAL MOTORS CO

           51,852

FREEPORT-MCMORAN COPPER

           67,329

GILEAD SCIENCES INC

           51,769

AMGEN INC

           65,582

GENERAL ELECTRIC CO

           45,966

SANDISK CORP

           64,799

HEWLETT-PACKARD CO

           45,484

 

Apple Inc.(NYSE:AAPL) remains the most actively traded on average. As volatility fell in 2007, Apple’s option volume ranged from a low of 68,000 to a high of 336,000 contracts in the prior 20-day period. On only four occasions did volume exceed 200,000 contracts per day. These days, minimum daily volume in each of the last 20-days ran at 205,000 and reached 1.1 million at the peak.

Facebook(NASDAQ:FB) and Netflix are the obvious newcomers to the current top 20 and have displaced names such as Qualcomm(NASDAQ:QCOM) and Google(NASD:GOOG). Banking names were infrequently traded ahead of the financial crisis and you can see that Citigroup and Bank of America have become popular options trading venues today. To put the shift in appeal in context, the recent 20-day average reading for Bank of America is almost 100,000 greater than the combined volume in the 2007 period for B of A, Goldman Sachs(NYSE:GS), Countrywide Financial and JP Morgan(NYSE:JPM-A).

Ford’s(NYSE:F) options have become more actively traded while General Motors(NYSE:GM) has only been optionable since emerging from bankruptcy. Amgen and Freeport McMoRan, Bristol Myers-Squibb and Halliburton have become far less fashionable options candidates over the years. 

 

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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