JLN Options: Short Sellers Fleeing Inverse VIX Fund After 24% Rally; Faster Rate Rise Seen in Options Trading Before Fed Meeting

Sep 15, 2014

Observations and Insights

Jamie Farmer, Managing Director, S&P Dow Jones Indices – Indexing 101

“This is a big industry…but it’s very tight, very interconnected, very close. It’s unbelievable how many people you come in contact with again.”

Jamie Farmer, managing director of S&P Dow Jones Indices, gives a rundown on indices, beginning with the history of indexing and the creation of the Dow Jones industrial average. According to Farmer, the original purpose of indexing was for editorial value. Eventually, it expanded and evolved into what we know as the Dow Jones S&P Indices. Farmer also covers trends along with the growth and expansion of the financial industry. He concludes by discussing the importance of networking and how he was able to progress to his current position by building several relationships throughout his career.

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Lead Stories

Short Sellers Fleeing Inverse VIX Fund After 24% Rally
By Joseph Ciolli, Bloomberg
One of the best trades in the stock market this year has been betting on lower volatility, and by one indicator, it’s going to stay that way.
Short sellers are abandoning an exchange-traded fund that becomes more valuable during times of market tranquility after it soared 24 percent this year. Bearish bets on the fund, known as the VelocityShares Daily Inverse VIX (XIV) Short-Term ETN, make up 0.2 percent of outstanding shares, a record low, compared with 19 percent in June, according to data compiled by Markit Ltd

Faster Rate Rise Seen in Options Trading Before Fed Meeting
By Matthew Boesler and Liz Capo McCormick, Bloomberg
Officials including Boston Fed President Eric Rosengren have said it’s time to consider dropping a pledge to keep rates low for a “considerable time” after the completion of the central bank’s bond-purchase program, which is set to end after the October meeting.
Options bets on higher interest rates are surging as traders speculate that the pace of the Federal Reserve’s tightening will be quicker than most other investors anticipate.

Why the S&P 500 is struggling to stay past 2,000
John Shmuel, Financial Post
The S&P 500 has struggled for the past month to stay above the 2,000 mark, but Capital Economics doesn’t see it as a worrying omen.
The S&P 500 last month finally breached the 2,000 level, but the U.S. index has since struggled to stay at that level.
On Monday, the S&P 500 hovered under 2,000 for most of the day. Some technical analysts have wondered whether the index’s inability to stay past 2,000 means a pullback is on the way.
John Higgins, chief markets economist at Capital Economics, is doubtful.

Dollar Resistance Futile as Aussie Sell Options Rise
By Kristine Aquino, Hiroko Komiya and Kevin Buckland September 15, 2014
RBA Governor Glenn Stevens
The Aussie’s decline may be welcomed by RBA Governor Glenn Stevens, who said Sept. 2 that an overvalued currency is hampering the economy’s transition from mining-led growth. Photographer: Jerome Favre/Bloomberg
The last holdout to the U.S. dollar’s world-beating rally is crumbling, and the derivatives market signals there’s no relief on the way anytime soon.

World Bank Fund Plans to Buy Emission Reductions Using Options
Sept. 15 (Bloomberg) — A planned World Bank facility will employ options to spur climate-protection investment using rules created by carbon markets.
The Pilot Auction Facility for Methane and Climate Change Mitigation will use auctions “to maximize the use of limited public resources,” the Washington-based bank said today in an e-mailed statement. Investors will bid for tradable put options giving the right to sell emission reductions to the facility at guaranteed prices.


BATS Chi-X Europe (BATS), Europe’s largest stock exchange by value traded and BX  Swiss (BX), Switzerland’s only independent exchange, have announced a partnership
agreement that will bring greater competition and enhanced market efficiencies to the Swiss equities market.

CME Group Announces Executive Team Appointments
New Leadership Structure Designed to Better Meet Needs of Global Client Base
CHICAGO, Sept. 15, 2014 /PRNewswire/ — To better meet the needs of its global customer base, CME Group, the world’s leading and most diverse derivatives marketplace, today unveiled a new leadership structure, appointing a number of individuals to new roles on its Executive Team, which reports to Phupinder Gill, CME Group Chief Executive Officer.  Gill will continue to report to CME Group Executive Chairman and President Terry Duffy.

ICE Futures US Sets Daily Volume Record in MSCI and Russell Equity Index Contracts
Press Release
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that ICE Futures U.S. reached a daily volume record in the mini MSCI Index futures complex, the mini MSCI EAFE Index contract, and the Russell 1000 Value Index mini contract on Friday, September 12, 2014.

Regulation and Enforcement

Letter from BlackRock to The Honorable Mary Jo White, Chair, U.S. Securities and Exchange Commission regarding Equity Market Structure Recommendations
Dear Chair White:
Public statements from you and other Commissioners and staff have indicated that the  Commission is considering a number of potential regulatory changes affecting US equity markets. In anticipation of these proposals, a number of market participants have issued
recommendations and provided commentary. BlackRock, Inc. (together with its affiliates
“BlackRock”) is pleased to formally submit our views on this topic to provide the Commission with its buy-side perspective.

Europe Ponders a Milder Version of “Tobin Tax”
EU Bulletin
European leadership met on Saturday (13 September) to discuss options of how to stimulate growth in the eurozone without increasing debt. Proposed solutions ranged from a huge investment fund via a pan-European capital market to increasing wages. One of the options that European finance ministers had difficulty in agreeing on was a long promised tax on financial transactions whose milder version Germany vigorously promoted despite France’s reluctance to give up on its moneymaking derivatives trading sector.


Victor Technologies and ACTIV Financial Announce Partnership For Real-Time Risk Analytics
ENGLEWOOD, N.J.–(BUSINESS WIRE)–Victor Technologies LLC, a financial analytics provider that specializes in risk management and listed derivatives pricing, today announced that the company is partnering with ACTIV Financial, a global provider of real-time, multi-asset financial market data and solutions, to offer its enterprise-grade Market Volatility Feed (MVF) as part of ACTIV’s market data platform. With this partnership in place, Victor Technologies’ world-class volatility feeds will be made available to ACTIV data feed subscribers in real-time via ACTIV’s global distribution network.

Victory Networks launches SpeedEdge, low latency feed handler
Press Release via Automated Trader
Chicago – Victory Networks, a provider of market data, connectivity and colocation solutions, has introduced SpeedEdge, a new low latency feed handler for futures and equity options. With its architecture and open API, SpeedEdge aims to offer trading firms a more scalable, flexible and transparent solution than traditional legacy feed handlers.


Why You Probably Don’t Need to Buy VIX Calls Right Now
Expectations just keep rising for that next big spike in the CBOE Volatility Index (VIX)
by Adam Warner, Schaeffer’s Investment Research
The market feels a little more volatile in the sense that it’s weak pretty much every morning these days. And 10-day realized volatility (RV) has in fact nearly doubled in the past week, so there’s that.

Diversify with Covered Call ETFs in a Tepid Market
Max Chen, ETF Trends
Covered call exchange traded fund strategies provide a great way to diversify in a slow growth market and generate some extra cash.
In the upcoming webcast, Using Options to Maximize Returns, Jon Najarian, Co-Founder of optionMONSTER and tradeMONSTER, Nicolas Piquard, Vice President and Options Strategist with Horizons ETFs Management, and Joe Cunningham, Executive Vice President and Head of Capital Markets for Horizons ETFs Management, explain options strategies and how ETFs can utilize options to provide a portfolio with greater diversification.

Options Education

Press Release
Patrice Hénault, Futures & Listed Options Product Manager at Saxo Bank, and Gary Delany, Director at The Options Industry Council, will conduct a seminar on equity options at the Saxo Bank office in Dubai on September 17 as part of an ongoing series of seminars.
CHICAGO and DUBAI, September 15, 2014 – Further to the content sharing agreement announced in April between The Options Industry Council (OIC) and Saxo Bank, the online trading and investment specialist, Saxo Bank has announced an options seminar in Dubai on September 17.


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