Publish date:

Stocks Suffer Worst Decline Since August, VIX Moves Higher by 8%

Traders were active in VIX October 22 calls on speculation that the VIX will rally into October 20 expiration.

Stocks suffered their steepest one-day decline since August on Tuesday. There were many factors hurting the tape including: A report that a consortium, including the New York Federal Reserve, wants to force Bank of America (BAC) - Get Report to buy back $47 billion of mortgage bonds, CNBC reported; Chinese surprise rate hike; continued selling in the banks, negative tech earnings and a stronger U.S. dollar that hit the commodity/energy complex.

The Dow Jones Industrial Average ended down 165.07 points, or 1.48%, to close at 10,978. The S&P 500 fell 18.81 points, or 1.59%, to close at 1165, and the Nasdaq was down 43.71 points, or 1.76%, to finish at 2436. All of the major S&P 500 sectors fell, led by energy, materials and health care.

The CBOE Volatility IndexI:VIX closed up $1.55, at $20.64. Overall put volume of 133,000 contracts compared to call volume of 186,000. Traders were active in October 22 calls on speculation that the VIX will rally into October 20 expiration.

The SPDR S&P 500 ETF (SPY) - Get Report closed down $1.86, at $116.68, with overall put volume of 1.14 million contracts traded compared to call volume of 626,000. SPY October 22 (W) 117 puts were the most active series on 74,700 contracts. November option implied volatility is at 20 and December is at 22, below its four-month average of 25. Traders were actively purchasing puts as the sell off accelerated into the afternoon, resulting in option implied volatility increasing 3%.

TST Recommends

The PowerShares QQQ Trust (QQQQ) closed down $0.46, at $50.84. Overall put volume of 347,000 contracts compared to call volume of 239,000, with November 50 puts as the most active series on 51,300 contracts. QQQQ November put option implied volatility is at 22 and December is at 24, below its three-month average of 26.

Wednesday will be a heavy day for corporate earnings reports. The following notable companies are reporting before the bell: Abbott Labs (ABT) - Get ReportAMR (AMR) , Boeing (BA) - Get Report, BlackRock (BLK) - Get Report, Check Point (CHKP) - Get Report, Comerica (CMA) - Get Report, Delta (DAL) - Get Report, Eaton (ETN) - Get Report, Genzyme (GENZ) , US Airways (LCC) , Manpower (MAN) - Get Report, Marshall & Ilsley (MI) , Altria (MO) - Get Report, Morgan Stanley (MS) - Get Report, Stanley Black & Decker (SWK) - Get Report, Textron (TXT) - Get Report, U.S. Bancorp (USB) - Get Report, United Technologies, Wells Fargo (WFC) - Get Report; After the close: Alliance Data Systems (ADP) - Get Report, eBay (EBAY) - Get Report, E TRADE (ETFC) - Get Report, Fidelity National Financial (FNF) - Get Report, LG Display (LPL) - Get Report, Netflix (NFLX) - Get Report, Robert Half Intl (RHI) - Get Report, Seagate (STX) - Get Report, Terex (TEX) - Get Report, Total System Services (TSS) - Get Report, Xilinx (XLNX) - Get Report.

The following economic data are expected for the remainder of the week of October 18: Wednesday: MBA Purchase Applications at 7:00 a.m. EDT, EIA Petroleum Status Report at 10:30 a.m. EDT and the Beige Book at 2:00 p.m. EDT; Thursday: Jobless Claims at 8:30 a.m. EDT, Philadelphia Fed Survey at 10:00 a.m. EDT and the EIA Natural Gas Report at 10:30 a.m. EDT. Friday: G20 finance ministers and central bank governors meet in Seoul, South Korea for the weekend.

OptionsProfits For actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.

Readers Also Like:

>>Trina Solar Heats Up

Readers Also Like:

>>Ready for the Post-Options Expiration Sell Off?

Readers Also Like:

>>5 Preferred Stocks With Outsized Yields