JLN Options: Fear Triggers Buying of VIX Calls; Business As Usual After Violence Riles VIX?; Short Attention Span

Jul 21, 2014

Lead Stories

Fear Triggers Buying of VIX Calls
Steven M. Sears – Barron’s
The “Fed Put” may be destined to become the “Yellen call.”
Unfortunately for investors, the call is on the CBOE Volatility Index (VIX), not the stock market. And VIX calls increase in value when the stock market declines.
The potential recasting of the famous Fed Put—named in years past for former Federal Reserve chiefs Alan Greenspan and Ben Bernanke, whose policies seemed designed to support the stock market—follows recent statements from Janet Yellen, the central bank’s current chair, that investors are too complacent about risk. This suggests that the days of historically low options volatility, a byproduct of a market grinding higher, are poised to end as the Fed prepares to wrap up its bond-buying program.

Volatility Update: Business As Usual After Violence Riles VIX?
JJ Kinahan – Forbes
A flurry of earnings and economic news this week may divert the stock market’s attention away from global violence—at least for now.
Indeed, risk perceptions as measured by the CBOE Volatility Index (VIX) tumbled late Friday after the biggest spike in over a year on Thursday, when the world’s attention was captured by a downed plane in Ukraine and fresh violence in the Middle East. What might happen this week as tech and blue chip earnings news flows and the market is subjected to another round of data from a hot-and-cold housing market?

Short Attention Span
Randall W. Forsyth – Barron’s
What a difference a few days can make.
On Monday, the legendary Art Cashin, director of New York Stock Exchange floor operations for UBS, quipped in an e-mail to his cadre of dedicated followers that some asset markets were trading “as if peace had broken out in the Middle East” despite the tensions in this perennial cauldron of conflict. And that didn’t take into account the litany of other woes elsewhere on the globe, notably in Ukraine.

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Russell Investments: Market volatility dangers likely
Trilbe Wynne – Pensions & Investments
Investor complacency, unsustainably low volatility and stretched equity market valuations might lead to market shocks, said the third-quarter update of Russell Investments’ Strategists’ 2014 Global Outlook.
The Russell report compared current market conditions to the low-volatility/high-return environment that preceded the 2008 global financial crisis and cautioned that, although recession risks are low and a major market reversal seems unlikely, there is the potential for a spike in market volatility. Russell strategists see the decline in volatility across all asset classes, which the report cited at near all-time lows as measured by the CBOE Volatility index, as unsustainable for the long term.

Videocast: No panic in the VIX pits

What to Make of the ‘Overbought’ VIX 
Adam Warner – Schaeffer’s Investment Research
Don’t look now, but we have an “overbought” CBOE Volatility Index (VIX)!
… Well, we had an overbought VIX, briefly. I use the VIX closing 20% above its 10-day simple moving average as my strict objective definition of overbought, and we got there on Thursday.
So, let’s update the table we just ran a couple weeks ago on overbought VIXes since July 2009.

J.P. Morgan Forms New Electronic-Trading Team
Emily Glazer – WSJ
J.P. Morgan Chase & Co. is forming a group of about 150 employees to help clients and its own traders make better decisions, according to a memo reviewed by The Wall Street Journal and people familiar with the matter.
The new team will continuously monitor trades across asset classes and electronic platforms, spot opportunities and identify threats to the bank’s market share, the people said.

Why markets ‘reek of complacency’ right now
Katie Holliday – CNBC
After a selloff on Wall Street Thursday as news of the downing of Flight MH17 emerged, U.S. stock markets were back in business on Friday, rebounding strongly. Meanwhile, the CBOE Volatility Index (VIX) which staged its largest rally in 15 months on Thursday, fell back 17 percent on Friday to 12.06, well below historical norms.

Hedge Funds Notch Another Milestone
Steven Russolillo – WSJ
Hedge-fund assets have hit yet another record.
The hedge-fund industry oversaw a record $2.8 trillion in assets at the end of the second quarter, according to industry tracker HFR Inc. That marked the eighth consecutive quarterly record for industrywide assets under management, up from $2.7 trillion at the end of the first quarter.

LEAPS for Stocks and ETF’s to be Added for 2017
Marty Kearney – CBOE Options Hub
We received two questions last week from investors regarding the listing of 2017 LEAPS® options for stocks and ETF’s.  The listing of LEAPS used to happen in the early summer for dates going out ~30 months.  The listing of LEAPS was pushed back a few months because our data showed they didn’t trade very much initially.
We do not know which stocks will have LEAPS, most of those that have LEAPS now should have LEAPS for 2017.  One investor asked for specific strike prices to be added.  It’s a little early to decide on those.  As it states below, that info will be available one week before the stocks in that cycle are added.


ICE’s Swap Execution Facility Head Barsoom to Leave in August
Matthew Leising – Bloomberg
Peter Barsoom, president of Intercontinental Exchange Inc. (ICE)’s swap trading service, is leaving the company at the end of August.
For the past four years, Barsoom, 43, has helped Atlanta-based ICE develop futures contracts on credit-default swaps and build the company’s swap execution facility, ICE Swap Trade LLC, one of the venues mandated by the Dodd-Frank Act to increase transparency and competition in derivatives trading.

CME wants to administer gold “fix”
Bernardo Mariano – Futures Magazine
The exchange sector was up 190 bps, 190 bps above global equities. Year-to-date the sector is outperforming global equities by 182 bps.
European Commission agreed with the proposal to suspend the status of derivatives deals entered into from March 18 until the region’s main regulator European Securities and Markets Authority determines which instruments should face mandatory clearing later this year. In a letter the EU commissioner Michel Barnier wrote to ESMA, he acknowledged that the implementation process “could jeopardize the principle of legal certainty” for market participants.

Regulation and Enforcement

Dodd-Frank’s Four Years of Doing Nothing
Editors – Bloomberg
Four years after President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, polling suggests that most Americans think it hasn’t done enough to protect them from a repeat of the 2008 financial crisis, a disaster from which the global economy has yet to fully recover.
Unfortunately, they’re right.


Russell Investments Strategists’ Outlook: The “great re-moderation” defines mid-year 2014 global market
Press Release (Russell Investments)
Russell Investments released today its Strategists’ 2014 Global Outlook – Third Quarter Update, which provides the most recent guidance for the firm’s multi-asset portfolios and services from Russell’s global team of investment strategists.
In the report, the team maintains its overall viewpoint as stated in the 2014 annual outlook: A modest preference for equities over fixed income globally, though with a slightly diminished spread for the U.S. market. However, the combination of U.S. market volatility at near all-time lows as measured by the CBOE Volatility Index (VIX) and investor complacency as well as stretched equity market valuations are leading Russell’s strategists to caution that the markets are especially vulnerable to shocks.

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