Observations & Insight
New Study On Weekly, Monthly S&P 500 PutWrite Indexes Released
The Chicago Board Options Exchange (CBOE) today announced the release of a new study that examines both the monthly CBOE S&P 500 PutWrite Index (PUTSM Index) and the CBOE S&P 500 One-Week PutWrite Index (WPUTSM Index), comparing their performances with that of traditional benchmark stock and bond indexes. This is the first comprehensive study that examines the performance of a benchmark strategy index that incorporates WeeklysSM options.
Written by Oleg Bondarenko, professor of finance at the University of Illinois at Chicago, and sponsored by CBOE, the study — “An Analysis of Index Option Writing with Monthly and Weekly Rollover”– analyzes the performance of the two PutWrite Indexes through the end of 2015.
****SD: Here is Matt Moran’s blog highlighting portions of the research. Copies of the full study for viewing and downloading can be found on the CBOE’s website. The CBOE has other studies in the works this year, so stay tuned.
In Europe, Traders See Epidemic of Volatility Just Starting
Roxana Zega – Bloomberg
As European stocks end the worst January since 2008, few investors are breathing sighs of relief. Quite the opposite: they’re preparing for it to get worse.
Plunging oil prices, diverging central-bank policies and China’s economic slowdown have made them nervous. A gauge of market stress, the VStoxx Index, is set for its biggest jump since August, with a near-record crush of futures trading amounting to bets that volatility will persist. In the U.S., investors are withdrawing money from exchange-traded products wagering on increased stock swings.
Fed says monitoring volatility as it holds rates
The Federal Reserve said it is monitoring the volatility in financial markets and developments in overseas economies as it left interest rates unchanged at 0.25-0.5 per cent following weeks of turmoil in equities and plunging commodity prices. The central bank said it was assessing what the gyrations around the world meant for the risks facing the US economy, leaving its options open as traders bet policymakers will leave rates unchanged until the second half of the year.
Bear Markets in Small Caps Take More to Smother Than This
Joseph Ciolli – Bloomberg
Options traders see no relief in sight for small-cap stocks mired in a bear market. They’re driving up the price of protection against further losses.
The cost of contracts on an exchange-traded fund that tracks the Russell 2000 Index is the highest since 2014 versus contracts on the SPDR S&P 500 ETF Trust, according to data compiled by Bloomberg. The rising demand for small-cap hedges comes with the Russell 2000 sitting 23 percent below its 2015 record.
VIX Outside of `Red Zone’ Indicates No Recession, Goldman Says
Roxana Zega – Bloomberg
Despite a recent surge, the so-called fear index remains in a trading range that suggests investors aren’t expecting a recession this year.
With an average of about 24 this month, the Chicago Board Options Exchange Volatility Index is consistent with a scenario of positive, though low, economic growth, according to a Goldman Sachs Group Inc. report. The “Red Zone” happens when the VIX is above 25 and climbing, which historically coincides with flat or negative U.S. gross domestic product.
US crude: With oil on wild ride, producers betting on further price drop
Nikkei Asian Review
Crude oil prices are growing volatile, prompting bearish investors and oil-producing companies to brace for steeper declines.
Benchmark West Texas Intermediate crude oil futures have often swung $2 to $3 a barrel in a single session this month. While some speculate that oil exporters will move to adjust output, others argue that the supply glut will stick around for a while.
Commodity trading advisers and other speculators are ramping up trades, and this is exacerbating volatility not only for crude oil but the commodity market as a whole. The oil market is growing sensitive to remarks by ministers from oil-exporting countries.
****SD: From Reuters, Flummoxed traders drive oil volatility to 2009 crisis levels
U.S. Treasury Unit Warns Clearinghouses Could Spread Risk
Ian Katz – Bloomberg
Clearinghouses used for derivatives trades can be vulnerable and potentially spread risks through the financial system, according to a U.S. Treasury report.
Day Traders Reign in the Americas’ Most Volatile Stock Market
Denyse Godoy – Bloomberg
Day traders are displacing long-term investors in the Brazilian stock market, further fueling the volatility that helps them profit, analysts say.
New York Stock Exchange Outlines Priorities to Strengthen Equity Market Structure During Extreme Volatility
The New York Stock Exchange (NYSE), a subsidiary of Intercontinental Exchange’s (NYSE:ICE) global network of exchanges, today outlined actions it will prioritize to enhance U.S. equity market structure and strengthen the markets during times of extreme volatility.
NYSE Urges Stock Exchanges to Change Rules Following Aug. 24
Annie Massa – Bloomberg
The New York Stock Exchange has called for every U.S. equity market to change their rules to prevent a repeat of the chaotic trading session on Aug. 24.
NYSE Group Inc. said trading halts designed to ease volatility should be longer, and exchange operators in the U.S. should harmonize the rules governing how to restart the stock market. The recommendations, in a report released on Thursday, could stop another haywire session from taking place, NYSE said.
Nasdaq Reports Record Fourth Quarter And Full Year 2015 Results
Nasdaq, Inc. (Nasdaq:NDAQ) today reported record results for the fourth quarter and full year of 2015. Fourth quarter net revenues were $536 million, up 4% from $517 million in the prior year period, driven by a $37 million positive impact from operations, partially offset by a $18 million negative impact of changes in foreign exchange rates. On an organic basis, excluding the impact of changes in foreign exchange rates and acquisitions, total fourth quarter net revenues were up 5%, while across the non-trading segments, organic revenue growth was 8%.
Nasdaq’s CFO Lee Shavel Poised to Retire, Opening Key Vacancy at Group
Jeff Patterson – Finance Magnates
Nasdaq (Nasdaq:NDAQ) is slated to lose one of its key executives – Lee Shavel, Chief Financial Officer (CFO) and Executive Vice President of Corporate Strategy, who announced his intent to leave the group and retire on March 31, 2016, according to a Nasdaq statement.
MIAX Options – February 1, 2016 Fee Changes – New Professional Rebate Program
Effective February 1, 2016, pending SEC approval, the MIAX Options Exchange will amend the Fee Schedule to introduce the Professional Rebate Program.
MGEX Sets New Open Interest Record
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), has reached the highest open interest total in its 135 year history as of Tuesday afternoon, closing the day at 82,279.
****SD: Everytime I read about MGEX, I immediately want some apple juice.
CME Group Named ‘Exchange of the Year’ in 2016 Risk Magazine Awards
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the company was named ‘Exchange of the Year’ at the 2016 Risk Awards. The awards are held annually to showcase the work of firms and individuals in the derivatives markets and risk management, and are the longest-running awards of their kind.
Regulation & Enforcement
Big companies call on EU to rewrite derivatives rules
Philip Stafford and Jim Brunsden – Financial Times
Ford, IBM, Airbus, BP and General Electric are among dozens of global businesses that have sharply criticised Europe’s rules for derivatives, claiming they unfairly push up costs for companies “that did not cause the financial crisis”.
Regulators have sought to strengthen the financial system since the crisis by crafting tougher rules for derivatives, which are used by companies to protect their earnings from adverse shifts in currencies, interest rates and commodities, including oil.
Europe hit hardest by regulation – new report
Julie Aelbrecht – Futures & Options World
Annual cost of compliance for European firms more than double the cost in Asia
Europe’s regulation has proved more costly than the regimes in either the US or Asia and is set to rise, according to new research that concludes the heavy European expense is forcing firms to think differently about how they achieve compliance.
The annual cost of staying compliant is $1.04bn for European firms, $993m for firms in North America, and just under $400m for firms operating in Asia, according to research conducted by Tabb Group.
Flash Crash research claims Sarao was not the cause
Marion Dakers – The Telegraph
New research on the Flash Crash that ripped through the financial markets in 2010 suggests that the Hounslow-based trader accused of placing spoof orders was not a major cause of the turmoil.
Navinder Singh Sarao, who will return to court next week to fight extradition to the United States, was arrested last April on US charges of market abuse taking place over several years.
Rocky markets test the rise of amateur ‘algo’ traders
Atul Prakash – Reuters
University student Spencer Singleton is among a growing band of amateurs turning to computer-driven automated stock trading – until now the preserve of hedge funds and mega brokers – and says he’s beating the market.
Texas-based Singleton won a contest last July run by an algorithmic investing website to write trading programs. The site, Quantopian, gave him $100,000 to put his model into action for six months and told him to keep any profits.
Breaking Down a $1M SPY Bet on Fed Day
Josh Selway – Schaeffer’s Research
Didn’t someone once say, “Never trade the Fed,” or did I just make that up? I probably just made it up. Regardless, someone out there certainly doesn’t feel the same way. Early Wednesday morning, ahead of the Federal Open Market Committee’s (FOMC) policy decision, a large bullish bet crossed on the SPDR S&P 500 ETF Trust (SPY), the exchange-traded fund (ETF) that roughly tracks the broad-market barometer S&P 500 Index (SPX).
XIV Or ZIV? New Perspectives Following 6 Months Of Elevated Market Volatility – VelocityShares Daily Inverse VIX Short-Term ETN (NASDAQ:XIV)
A few articles published on Seeking Alpha have focused on comparing two volatility ETNs: VelocityShares Daily Inverse VIX Short-Term ETN (NASDAQ:XIV), and VelocityShares Daily Inverse VIX Medium-Term ETN (NASDAQ:ZIV). Because the most recent of these appeared in July 2015, all of them predated the past six months of elevated market volatility.
This article focuses on the historical performances of XIV and ZIV since inception, and assesses their suitability for trading and/or investing in light of additional wisdom gained over the past six months.
The New Way to Track VIX ETFs
Adam Warner – Schaeffer’s Research
Having trouble keeping track of all those CBOE Volatility Index (VIX) exchange-traded funds (ETF)? Want to see how they act vs. each other, vs. stock indices, et al? Well, you’re in luck. Eli Mintz of VIXCentral fame has introduced this:
“This is a new tool I developed which basically allows you to conveniently view many Yahoo charts together. You can change the period, size etc. and of course add your own tickers and create your own views.”
FinTech Exchange Conference Set for April 21, 2016 in Chicago
Today, Barchart, a leading provider of market data and financial technology solutions, announced FinTech Exchange 2016 (www.fintechchicago.com), its second annual event in Chicago focused on financial technology, and the financial markets and trading. Following a sold-out inaugural event in 2015, the 2016 event on April 21 will focus on the convergence of financial markets, trading and technology. The event features leaders from software, market data, infrastructure, cloud computing, exchanges, trading, venture capital and media in a series of 20 on-stage presentations.
CBOE RMC, Feb. 29-Mar 2, 2016, Bonita Springs, FL
Now in its 32st year in the U.S., the annual CBOE Risk Management Conference (RMC) is the premiere financial industry conference designed for institutional users of equity derivatives and volatility products. Hosted by the Chicago Board Options Exchange (CBOE), RMC is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure and enhance yields. RMC brings together top traders, strategists and researchers, enabling participants to learn the state-of-the-art in investment risk management from true experts in the field. Learn more HERE and register for the event HERE