Another Volatility-Linked Exchange-Traded Product Bites the Dust

Jul 16, 2018

Another Volatility-Linked Exchange-Traded Product Bites the Dust

Jul 16, 2018

Jeff Bergstrom

Jeff Bergstrom


Observations & Insight

Richard Elden, Innovative Hedge Fund Investor, Is Dead at 84
Matt Phillips – NY Times
Richard Elden, a journalist-turned-investment manager who was an early investor in a number of notable hedge funds, died on June 27 at his home in Chicago. He was 84.


Theresa May’s steely warning to Tory rebels AND those bully boys from Brussels
Daily Mail Online
Our Brexit deal for Britain seizes the moment to deliver the democratic decision of the British people and secure a bright new future for our country outside the European Union.

****SD: This editorial from May was published on Saturday. It’s pretty much “my way or no way.” When Trump met with May, he reportedly told her that she should sue the EU rather than negotiate.

Lead Stories

Another Volatility-Linked Exchange-Traded Product Bites the Dust
Luke Kawa – Bloomberg
REX VolMAXX Long VIX Futures Strategy ETF to close in July; Rex Shares previously aimed to reduce the product’s swings
Another volatility-linked product is heading for the exits — without the same fireworks that felled similar funds in February.

****SD: I spoke with Rex CEO Greg King (he’s been building ETPs for a decade) about volatility-linked ETPs at the start of the year, shortly before February’s blow up – how quickly things change. One point he brought up: if there was more liquidity in VIX weekly futures (and options), a VIX-linked ETP could more accurately track spot VIX.

Proposed Rule Change to Amend the Position Limit for SPY Options
SIFMA provided comments to the Securities and Exchange Commission (SEC) on File Number SR-Cboe-042 regarding proposed rule change to amend the position limits for SPY options.

****SD: SIFMA argues that the SPY Pilot Program should “be extended while the exchanges evaluate data to determine whether the positions limits should remain unlimited, or indeed, if position limits should be established for SPY.” SIFMA says that Cboe’s letter to establish a 1.8 million contract position limit doesn’t provide enough reasoning why the current environment should change as there haven’t been adverse effects from a lack of limits.

Never Mind the VIX, Anxiety Is Everywhere in U.S. Stock Market
Lu Wang – Bloomberg
Investors seeking safety in options market, defensive shares; Low correlation means pockets of losses don’t spread
The Nasdaq 100 is at a record, stocks have just strung together two straight weeks of gains and one of the best earnings seasons in a decade is at hand. Bears vanquished? Not entirely.

****SD: Seems like current daily commentary on markets falls in a few categories: 1) Oil gets weird, more on that below 2) Earnings expectations 3) Trade war barbs thrown 3a) Or more generally “Trump did something” and 4) Treasury yields/curve/spreads.

U.S. oil boom delivers surprise for traders – and it’s costly
Julia Payne, Devika Krishna Kumar, Dmitry Zhdannikov – Reuters
The world’s biggest oil traders are counting hefty losses after a surprise doubling in the price discount of U.S. light crude to benchmark Brent WTCLc1-LCOc1 in just a month, as surging U.S production upends the market.

****SD: Geneva Energy markets framed its closure at the end of June as a Basel III regulatory issue, but another aspect of its demise was likely the fact that, as primarily a spread trader, it suffered large losses as the Brent WTI spread blew out.

Why your transatlantic trades are getting picked off (VIDEO)
STAC – Insight for the Algorithmic Enterprise
Bob Van Valzah, Independent Performance Expert, presented this at the 13 June 2018 STAC Summit in New York.

****SD: This is the video of Van Zalzah’s presentation about his findings regarding shortwave trading that were documented on the Sniper in Mahwah blog.

How Does VelocityShares’ ZIV Work?
Six Figure Investing
Just about anyone who’s looked at a multi-year chart for a long volatility fund like Barclays’ VXX has thought about taking the short side side of that trade. VelocityShares’ ZIV is an Exchange Traded Product (ETP) that allows you to hold a short volatility position while avoiding some of the issues associated with a direct short position in VXX. Because ZIV is tied to VIX futures with at least 4 months until expiration its daily percentage moves are considerably smaller than the moves of funds (e.g., VXX, UVXY, TVIX) that are tied to shorter term, more volatile VIX futures.

****SD: Another comprehensive rundown on a VIX ETP from Six Figure.

Japanese Yen Volatility Could Take Center Stage
Andrew Hecht – Nadex
These days, the issue facing most markets on the international stage is the ongoing saga of trade. On the campaign trail in 2016, U.S. President Donald Trump railed against the “bad deals” made by previous administrations when it came to trading partners around the world. He told audiences that, if elected, his administration would rework the cumbersome and “unfair” multilateral trade agreements that caused massive trade imbalances for the United States. To “Make America Great Again,” which was the slogan that likely won him the Presidency, candidate Trump pledged to renegotiate existing agreements to bring “reciprocity and fairness” back to international trade. In 2018, one year into his administration, President Trump took on the trade issue with no less enthusiasm than he addressed the issue when running for office.

Exchanges and Clearing

CME Group Achieves International Average Daily Volume of 4.2 Million Contracts in Q2 2018, Up 13 Percent from Q2 2017
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it achieved quarterly international (defined as outside of the US) average daily volume (ADV) of 4.2 million contracts during the second quarter of 2018, up 13 percent over the same period last year.

BSE’s India INX renames derivative contract
Money Guru India
The India International Exchange Limited (India INX), India’s first international exchange based in the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT City) has renamed its derivative contract ‘S&P BSE SENSEX 50 Futures & Options contracts’ to ‘India 50 Futures & Options contracts’. A notification is hereby issued for all the relevant stakeholders.

Regulation & Enforcement

Frenzy to Get Bitcoin ETF Listed Is Clogging Up the SEC’s Email
Rachel Evans – Bloomberg
The Securities and Exchange Commission is fielding a deluge of messages from crypto-currency enthusiasts after an exchange sought approval to list a Bitcoin ETF.
In the three weeks since the SEC asked for feedback on Cboe Global Markets Inc.’s request to change its listing rules and allow the crypto exchange-traded fund, more than 90 individuals have submitted comments. That’s 10 times the number of responses the SEC received when it asked for opinions on another Bitcoin ETF listing back in April.


Stock market earnings-season winning strategy since 1996, from Goldman
Akin Oyedele – Business Insider
Traders are underestimating the gains that could be made during this earnings season, according to Goldman Sachs.
The average implied earnings-day move for second-quarter earnings, based on options-trading activity, is 4.2%, Goldman’s John Marshall said in a recent note. That’s down from last quarter and the 11-year average.

Machine learning can help money managers time markets, build portfolios, and manage risk
Michael Maiello – Chicago Booth Review
It’s been two decades since IBM’s Deep Blue beat chess champion Garry Kasparov, and computers have become even smarter. Machines can now understand text, recognize voices, classify images, and beat humans in Go, a board game more complicated than chess, and perhaps the most complicated in existence.

****SD: This is a couple of weeks old but just came across my radar.

Using The Variance Risk Premium To Predict Futures Markets
AllAboutAlpha – Seeking Alpha
A new study of volatility in commodity prices indicates that both the total and the decomposed variance risk premiums of at least certain commodities markets contain information with predictive power.
The variance risk premium is the payoff of the synthetic variance swap contract. Specifically, it’s the difference between the floating leg and the fixed leg of the swap contract.


Tech stocks contributed 98% of the S&P 500’s 2018 gain
Josh Brown – The Reformed Broker
The S&P 500 is up 2.6% year to date through the first half and technology stocks have contributed approximately all 2.6% of it.

****SD: And the contributions of the tech sector can be even further narrowed to the FAANG suite. Speaking of FAANG, see Bloomberg’s Netflix Options Suggest Shares May Hit Record If Results Impress

JLN Options Newsletter

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