JLN Options: A New Vision of VIX; Volatility Watch: Retail Earnings, Fed Comments; Market structure faith rises while maker-taker faith falls

Aug 18, 2014

Lead Stories

A New Vision of VIX
Steven M. Sears – Barron’s
Over the past 21 years, the CBOE Volatility Index, or VIX, has emerged as one of Wall Street’s most watched sentiment indicators.
VIX’s predictive powers are so highly valued that investors who never trade options check the VIX each day to understand how sophisticated investors view stocks over the next 30 days.

Volatility Watch: Retail Earnings, Fed Comments
JJ Kinahan – Forbes
Most measures of stock market volatility have dropped sharply in recent days, despite a blip on Friday. Now macro news, including spotty global economic readings and geopolitical rumblings, share the spotlight with a full line-up of retailers’ earnings. What happens if short-term spikes in volatility, like Friday’s blip, overstay their welcome? It’s a reminder that, with the busiest earnings flurry behind us, focus could fixate on the uncertain situations unfolding around the globe.

Market structure faith rises while maker-taker faith falls
The Trade USA
Faith in the US equities market structure has risen considerably in the past 12 months, according to the findings of a recent survey by industry analyst firm the TABB Group.
Of the 232 buy-side, sell-side, trading venue, vendors and industry watchers polled by the research group, 56% have either ‘high’ or ‘very high’ confidence in today’s market structure compared to 18% who had either ‘weak’ or ‘very weak’ confidence.

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Walking A Fine Line Here – Weekly Market Outlook

Price Headley – CBOE Options Hub
In retrospect, last week’s bounce wasn’t have been a total surprise.  Most of the market’s major indices were approaching major support levels, as we’ve previously discussed.  Will the momentum continue or will the bearish volatility return?
We’ll look into that, right after a quick look at all of last week’s and this week’s economic numbers.

Three Gray Swans Week of 8/18 – 8/22
Russell Rhoads – CBOE Options Hub
The earnings calendar is light so this week is all about the economy. We get a read on inflation, a look into the mind of the Fed, and then hear from the Fed to finish out the week.

When It Comes to the VIX, Nothing Is a Sure Thing
Adam Warner – Schaeffer’s Investment Research
Selling VIX (presumably futures, though I suppose it could mean volatility in general) into pops is NOT a sure thing. Nothing is ever a sure thing. Everything I ever write, every data study I ever provide, every chart I ever post all are intended to highlight probabilities, never certainties. Certainties don’t exist.

Market Confidence At High Level Says Study
Mark Melin – ValueWalk
Confidence in the stock market among financial services insiders is high following a speech by Securities and Exchange Chair Mary Jo White on June 5, according to a study by the Tabb Group.According to the study of industry professionals polled in July, 56 percent reported high or very high confidence in the stock market while only 18 percent reported weak or very weak confidence in the stock market.

New type of ETF promises to shrink spreads
Yakob Peterseil – Risk.net
With the launch of their ‘international’ range of ETFs, iShares and Euroclear are creating a new type of ETF issuance inside an established structure. If their hopes pan out, all ETFs will look like this three to five years from now.

Morgan Stanley appoints new FX options head
Thiago Melzer, managing director and head of foreign exchange options, Americas, at Morgan Stanley, has moved to London to become global head of FX options.


JOBS Act Rewards U.S. Exchanges Amid Surge of Criticism
Doni Bloomfield – Bloomberg
A two-year-old U.S. law designed to make it easier for small companies has turned into a boon for the country’s stock markets.
The Jumpstart Our Business Startups Act has spurred 25 percent more U.S. initial public offerings annually, according to a research paper by economists at Penn State University and the State University of New York at Buffalo. That generates listing fees for the New York Stock Exchange and Nasdaq Stock Market, a rare bright spot for the industry amid allegations that trading venues favor some customers versus others.

Global exchanges line up for KRX stake
Song Jung-a in Seoul and Jeremy Grant – Financial Times
US exchange operator CME Group, Deutsche Börse of Germany and Standard & Poor’s have expressed interest in buying a stake in Korea Exchange (KRX) as part of their efforts to expand into Asia, South Korea’s bourse operator said.
A 2.5 per cent stake in KRX is for sale ahead of a planned merger between brokers NH Investment & Securities and Woori Investment & Securities, and is due to be completed at the end of this year.

Borsa Istanbul forges new links to boost Turkey’s financial credentials
Borsa Istanbul said it plans to strengthen its derivatives market by creating links with other global institutions as part of its plans to turn Turkey into a leading financial centre.


Hacking Wall Street
Robin Goldwyn Blumenthal – Barron’s
To cybercrooks, Wall Street is pure catnip. By breaking into a brokerage firm or asset manager, hackers may find not only cash but also a valuable investment idea. The security firm eSentire describes a cyberattack that thoroughly mined the e-mails of a hedge fund’s chief financial officer, apparently in a hunt for the firm’s investment strategies.


Selling Premium As Small Caps Play Catch Up (SPY,IWM)
Todd Gordon – Investopedia
In our recent article we pointed out a divergence between the small cap Russell 2000 and the S&P 500.  Small cap fell at a faster rate than the S&P 500 creating the divergence and boosting implied volatility. However, the divergence has narrowed while the Russell re-gained its footing in line with our recent analysis.  Using Elliott Wave we have defined our trade levels and will move into a long trade by selling the elevated volatility in the options market.

Options Education

Free VIX Webcast Series – Aug 25 – 27
Russell Rhoads – CBOE Options Hub
In just over one week The Options Institute at CBOE will be offering three free webcasts discussing different aspects of the CBOE Volatility Index or VIX. On Monday August 25th I’ll start out with the basics of volatility indexes and introducing exactly what VIX is measuring.  In addition we will look at how the index has historically behaved relative to the S&P 500. The following day I will discuss VIX futures and options which are two of the most common methods of gaining exposure to market volatility. Finally on Wednesday we will wrap things up on Wednesday with a discussion of trades that are appropriate for any market outlook.



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