Investors Brace for More Turbulence; Bearish VIX?; Market disconnect

Apr 6, 2018

Investors Brace for More Turbulence; Bearish VIX?; Market disconnect

Apr 6, 2018

Jeff Bergstrom

Jeff Bergstrom


Observations & Insight

Editor’s Notes
JLN Staff

-A new episode of The Spread will be available at the end of the day. Follow JLN Options on Twitter to keep up to date on our activity. #MadeAGoalToBeMoreActiveOnSocialMediaAndYesIKnowLongHashtagsAreCounterproductive

-Always wanted to ask Nassim Taleb something? Now might be your chance to get a question answered as Tyler Cowen is polling his audience for ideas in preparation for an interview with Taleb.~SD

– Yesterday marked the 228th birthday of the Philadelphia Stock Exchange (PHLX). The following comes from Daniel Carrigan, president of Nasdaq Futures, Inc.: “PHLX was formed to support a fledgling U.S. government which borrowed $77 million from citizens to wage freedom from Britain. The first private debt offering was listed for trading in 1795 for The Penn and Lancaster Turnpike. The certificate contained the first picture imprint on a certificate (a picture of a turnpike). What is a turnpike? It is a gate with a wooden pole with a metal pike on top. Traffic was directed by whichever way the pike was “turned” at the gate. There are no records how much capital was raised, but the turnpike bond interest rate in 1795 was 5% per annum.”~SD

Lead Stories

Investors Brace for More Turbulenceóand Look to Profit From It
Asjylyn Loder, Ira Iosebashvili and Gunjan Banerji – WSJ (SUBSCRIPTION)
Stock-market swings in the past week have many investors scrambling to profit from the return of turbulence after a prolonged period of tranquility.
Rising interest rates, budding fears of inflation, the prospect of a trade war and a rout in technology stocks have dragged U.S. stocks lower and spurred one of the most sustained bouts of market volatility in years. Before Thursday, the S&P 500 index had gained or lost at least 1% during eight of the previous nine trading sessions.

Fear Not, Investors, the VIX May Be Too Bearish
Gunjan Banerji – Barron’s
Wall Street’s so-called fear gauge remains heightened, but fear hasn’t entirely gripped the markets. At least, that’s what other options measures indicate.
The Cboe Volatility Index, or VIX, produces a yardstick of expected volatility through Standard & Poor’s 500 options prices. Since its early February surge, it has stayed elevated, darting past its 2017 average and closing above 20 more than a dozen times, something it didn’t do even once last year. Additionally, the futures curve on the VIX has remained invertedóan unusual condition, usually indicating heightened investor anxiety.

Record market disconnect has stocks spring-loaded for recovery: UBS
Joe Ciolli – Business Insider Prime (SUBSCRIPTION)
As the stock market has been whipsawed in recent weeks, bond traders have been nonplussed.
Consider this remarkable feat of restraint: While the Dow Jones industrial average was turning in a swing of more than 700 points on Wednesday ó one of its biggest ever ó 10-year Treasury yields never budged more than 3 basis points in either direction.

Wall St. slides as U.S.-China trade spat intensifies
Sruthi Shankar – Reuters
The Dow Jones Industrial Average fell more than 450 points and the other main indexes slipped on Friday after U.S. President Donald Trump’s latest tariff threat on Chinese imports revived fears of a trade war between the two countries.

****SD: From Bloomberg –

This is ‘the new safe haven’ as the trade punches keep coming
Victor Reklaitis – MarketWatch
Like Conor McGregor attacking a UFC bus, the tariff-lover-in-chief has ambushed a stock market that was driving toward a weekly win.
“Just when you thought it was safe to go back in the water, President Trump orders USTR to consider $100 billion in additional tariffs,” groans Oanda’s Stephen Innes. And so now the U.S. Trade Representative looks set to go all McGregor and swing a hand dolly at more Chinese imports, as today’s jobs report also gets attention.

****JB: The tl;dr on this is “the new safe haven” is volatility (according to the article).

Is The Big Short Here At Last?
Anna Coulling –
Given the level of market volatility that traders and investors have had to ensure since the start of the year, now may be a good time to consider some of the longer term charts, and in particular the June contract for the NQ e-mini. And also to consider whether we are looking at the first serious market correction since 2009.

***SD: At last? It came out in 2015.

Exchanges and Clearing

CME Group takes heat over large, private grain trades
Tom Polansek – Reuters
Global grain merchant Bunge Ltd and U.S. farmer-owned cooperatives hit exchange-operator CME Group Inc with complaints at a regulatory advisory committee meeting on Thursday over private transactions which critics say reduce transparency in agricultural markets.

CME Still World’s Most Valuable Exchange Brand
AlphaWeek Staff
Chicago Mercantile Exchange (CME) remains the world’s most valuable exchange brand despite its brand value dropping 1% to US$1.3 billion, according to the latest report by Brand Finance, the world’s leading independent brand valuation and strategy consultancy. This achievement comes on the back of their huge business volumes, with steady growth delivering the highest revenues amongst global asset exchanges.

***SD: It’s a little unclear to me if this means CME Group or just the Chicago HQ – that is, does it include COMEX/NYMEX/CBOT and the rest of the business? The article also references NYSE, but doesn’t say ICE. Weird.

Euronext Announces Volumes for March 2018
Press Release
In March 2018, the overall average daily volume on derivatives reached 587,528 contracts, up +9.1% compared to March 2017 and down – 8.0% compared to the previous month.

Regulation & Enforcement

Robbins Geller Rudman & Dowd LLP Files VIX “Fear Gauge” Manipulation Class Action Suit against the VIX Exchange CBOE
Press Release
Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) ( today announced that it has commenced a class action on behalf of investors who held or traded S&P 500 (“SPX”) option contracts (“SPX Options”), CBOE Volatility Index (“VIX”) option contracts (“VIX Options”), futures based on the VIX (“VIX Futures”), or VIX Exchange Traded Products (“VIX ETPs”) on exchanges run by Cboe Global Markets, Inc. (formerly known as CBOE Holdings, Inc.) and its affiliates (“CBOE”) during the following time periods (“Class Period”):

UK watchdog says license needed to trade cryptocurrencies
Simon Jessop and Emma Rumney – Reuters
Britain’s financial watchdog said on Friday that firms offering services linked to cryptocurrency derivatives must meet all relevant rules in the regulator’s handbook or could face sanctions.


Fidessa delays Temenos takeover vote as rivals circle; Trading software provider is waiting to see if higher counteroffers emerge to Temenos’ GBP1.3bn takeover bid
Fareed Sahloul – Financial News (SUBSCRIPTION)
The trading software provider Fidessa has pushed back a shareholder vote to approve a GBP1.3bn takeover bid from a Swiss rival, as it waits to see if higher counteroffers will be made.


Equity Volatility Hasn’t Hit Gold (Yet)
Sage Anderson – tastytrade blog
Despite tumultuous trade in the world’s largest equity markets, the precious metals sector has endured a fairly quiet start to 2018.
Heading into mid-March, gold prices have ranged so far this year between roughly $1,300 and $1,350. Compared to the calendar year 2017, when prices ranged between $1,100 and $1,300, the band has certainly narrowed.


Post-Trade Industry Leaders To Gather For The WFE’s 35TH IOMA Clearing & Derivatives Conference
Industry leaders will gather in Chicago, USA, next week for The World Federation of Exchanges’ (“The WFE”) 35th IOMA Clearing & Derivatives Conference which kicks off on 11 April through to 13 April 2018.


Investors are reportedly pulling out of Bill Ackman’s hedge fund at a ‘rapid pace’
Will Martin – Business Insider
investors are pulling out of Pershing Square Capital at a “rapid pace,” according to The Wall Street Journal. Pershing Square’s total assets reportedly declined by 12%, to $8.2 billion, in the first quarter of 2018.

****SD: The curse of the magazine cover continues…

‘I’ve Never Seen Anything Like This’: Investing Legend Jack Bogle Speaks Out on the Stock Market’s Wild Swings
Ian Salisbury – Money Magazine
Vanguard founder Jack Bogle says the stock market’s recent ups and downs are the most dramatic he’s seen in his decades-long investing career.

****SD: Bogle says “Don’t do something, just stand there” as a sort of quotable soundbite in the short video accompanying this piece. Has to be some of the worst advice I’ve ever heard (though it’s selectively applicable in certain survival situations).

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