VIX Rallies as Stocks Trade Down

The VIX rallies after the market began trading lower during the last hour of the session.
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Stocks failed to snap a two-day losing streak and ended in the red, on light volume, after see-sawing throughout the session. The fluctuations came as the market weighed strong deal activity against broader macroeconomic uncertainties. The Dow Jones Industrial Average ended down 41.06 points, or 0.40%, to close at 10,172. The S&P 500 lost 4.40 points, or 0.41%, to close at 1067, and the Nasdaq was down 19.63 points, or 0.90%, to finish at 2160. The U.S. dollar ended slightly higher, while gold was a touch lower and crude dropped to nearly $73.00 a barrel.

The CBOE Volatility IndexI:VIX closed up $0.20, at 25.93. The VIX rallied from its intra-day low of $24.62, after the market began trading lower during the last hour of the session. VIX calls traded 89,000 contracts versus 72,000 puts. The majority of VIX call volume occurred in September, while the bulk of the put volume was in October. This suggests traders are pricing in higher near-term VIX pricing, with a more relaxed volatility environment in October.

The S&P 500 Index (SPX) puts were more active than calls on a tight trading range. September 1070 put option implied volatility is at 24, November is at 27 and December is at 28. At-the-money September 1070 calls and puts were the most active SPX strike, with 10,000 calls and 14,000 puts trading. The SPX has resistance at its 200-day moving average of 1116.

PowerShares QQQ Trust ETF (QQQQ) closed down $0.44 to $44.48, as tech traders took profits on a fear of weak hardware services spending as jobless claims increase. QQQQ call option volume of 163,000 call contracts compares to 219,000 puts. August weekly and September put option implied volatility is at 24, December is at 30, verses its 26-week average of 26, suggesting larger outer-month price movement.

Financial Select Sector SPDR (XLF) - Get Report closed down $0.10, at $13.73. XLF call option volume of 25,000 contracts compares to put volume of 27,000 contracts. XLF August weekly put option implied volatility is at 25, September is at 28, and December is at 36, verses its 26-week average of 29, suggesting traders are selling near-term options and purchasing outer-month options as a hedge for larger autumn price movement.

Looking ahead to Tuesday, traders will be focused on Existing Home Sales, due out at 10:00 a.m. EDT. July is expected to come in at 4.65 million sales versus the consensus range of 3.96 million to 5.2 million. Notable companies reporting include: Bank of Montreal (BMO) - Get Report, Barnes & Noble (BKS) - Get ReportBurger King (BKC) , Medtronic (MDT) - Get Report, Pacific Sunwear (PSUN) , and WPP (WPPGY) .

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