JLN Options: Goldman Sachs' Top 10 Trade Ideas for 2015; Volatility trading and quantitative macro hedge funds outperform in October; China is open for trading

Nov 21, 2014

Observations & Insight

Today’s newsletter features a snapshot of volatility from around the world, starting with China and moving to OPEC, the Eurozone and finally to the U.S.. We also feature volatility among asset classes, including equities, gold, energy and foreign exchange.

But first, have a look at a fun 15-minute look at the importance of happiness, in this MarketsWiki Education talk with FIA Europe CEO Simon Puleston-Jones.

Then, have a nice weekend.


Simon Puleston Jones, CEO of FIA Europe – In pursuit of Happiness

“Try to find someone who does things right that you really aspire to be over the course of your career.”

Simon Puleston Jones, CEO of FIA Europe, gives advice for balancing personal life with career life. Jones begins his presentation with an acronym for “DREAM”, discussing how happiness and achieving your goals is related to Diligence and drive, Relationships and recruitment, Education and ethics, Adjustments and appreciation, and Mistakes and mentors. He stresses that your career should be something you truly enjoying waking up for and how some perks such as fancy cars and large boats can be outweighed by having a family and raising children. Jones shows that happiness is not about materialistic possessions, but rather the relationships you build with others and the experiences you have throughout your life.

Watch the video »

Lead Stories

Goldman Sachs’ Top 10 Trade Ideas for 2015
Storied Investment firm Goldman Sachs Group Inc. (GS) is one of the most closely-watched brokerages on Wall Street. As such, its yearly “top 10 list” of market trends is a must-see event.
***DA: Spoiler alert: Goldman sees Goldilocks.

Volatility trading and quantitative macro hedge funds outperform in October
An increase in market volatility during October helped the Newedge Volatility Trading Index post strong positive returns for the month of October, with an increase of 1.12%, its best month since January 2012.

China is open for trading
Futures Magazine
The People’s Bank of China spat a good amount of lighter fluid on the global equity market rally at the end of a week that saw the launch of a program designed to provide two-way access to mainland and Hong Kong markets.

Next Week’s OPEC Meeting, Eurozone Data Gives Gold Much To Consider
Gold saw a volatile trading this week, ultimately closing  the week higher and notching a third straight week of gains. A surprise interest rate cut Friday by China pumped up the yellow metal, traders said. The People’s Bank of China cut the one-year benchmark lending rate by 40 basis points to 5.6% and the one-year deposit rate by 25 basis points to 2.75%.

OPEC seen boosting oil price volatility
Speculation is growing that OPEC may have no choice but to cut production when it meets on Thanksgiving Day. That talk helped drive oil futures higher Thursday and is likely to keep the market volatile Friday, ahead of the weekend, and into next week. Iran is also a factor for the market, as the Nov. 24 deadline for a deal on its nuclear program approaches.

How Much Further Can the Bull Run?
The big story of recent stock market investment has been volatility, and the opportunities that sharp price swings can bring for those with strong nerves. But good news is emerging now for those who prefer safer strategies: some of the best returns this year have come from stable stocks like billionaire Warren Buffett’s holding company Berkshire Hathaway or Swiss toilet maker Geberit

Markets Love Central-Bank Gifts
Mohamed El-Erian – Bloomberg View
Equity markets around the world are responding enthusiastically today to news of further central-bank stimulus, and understandably so. Central banks have been the markets’ best friends. Betting on their continued support has been a very profitable strategy for investors in recent years.

Foreign exchange trading is at its most volatile in 10 months
Volatility in the foreign-exchange market has reached its highest point in 10 months, according to a J.P. Morgan Chase index. In the third quarter, the market theme was broad dollar strength, as the greenback registered strong gains against its rivals in the G-7, and emerging market currencies as well, said Camilla Sutton, chief FX strategist at Scotiabank. But the theme is shifting in the fourth quarter to be all about the dollar-yen pair.

Regulation & Enforcement

CFTC Reinstates NASDAQ Futures, Inc. as a Designated Contract Market
The Commodity Futures Trading Commission (CFTC) today approved the application of NASDAQ Futures, Inc. (NQF) for reinstatement as a designated contract market (DCM).

CFTC warns EU rules may force tighter US derivatives regulation
Philip Stafford – Financial Times
The US may be forced into tougher regulation on benchmarks as planned stringent European rules may shut out the region’s banks and asset managers from US markets, the head of the US derivatives regulator has warned.

SEC official: Stop spending time writing rules to protect millionaires
Sarah N. Lynch – Reuters
A top U.S. regulator on Thursday decried a push by some investor advocates to change the rules that define who can qualify to invest in riskier private security deals, saying it is straining resources and that “millionaires can fend for themselves.”


New managed volatility funds aim to protect client portfolios from market swings
When clients walk into a financial adviser’s office, they usually bring along dreams of major upside. They want the next Microsoft, Google or Tesla — the big ideas everyone wants to hear about at cocktail parties. We discourage them at our peril, but it is just as important to guide clients to investments that will help manage their risk. Creating a balanced portfolio isn’t sexy, but it is smart. To this end, a new generation of products is gaining popularity. We characterize them as multi-asset, outcome-based or solutions-based.

SEC greenlights RegSCI technology rules
John Bakie – The Trade
The US Securities and Exchange Commission (SEC) has voted to adopt new rules on technology infrastructure for key market participants and operators.


Is the VIX Staring at a Turkey Coma?
Schaeffer’s Investment Research
Index volatility has two distinct drivers. One is the volatility of the component stock. The other is the degree to which those component stocks correlate to one another. If correlation is strong, volatility rises — it essentially compounds moves in individual names. Conversely, if correlation drops, index volatility drops as the moves in individual names offset each other. Well, it looks like we’re seeing a bit of the latter lately

Low Volatility-Oriented U.S. Large Cap Stocks Outperformed U.S. Large Cap Value
In 2014 year-to-date as of November 18, the Russell High Efficiency Factor Indexes show low volatility-oriented U.S. large cap stocks leading their value-, quality- and momentum-oriented counterparts within the Russell 1000® Index. However, since the Russell 1000 Index hit a six month low on October 15*, U.S. large cap the momentum factor index has led all other factor indexes.

Expand your time horizon to invest in volatile equities
In a volatile equity market, first time investors should invest with a longer time frame, to avoid being on tenterhooks all the time. “If you have 5 year time horizon then you don’t have to bother about volatility. They won’t have to focus on huge daily and weekly volatility in markets,” Saleem Khokhar, head of equities at National Bank of Abu Dhabi asset management group told Gulf News.

Weary of the Market Rollercoaster, Investors Turn Again to Steady Stocks
The big story of recent stock market investment has been volatility, and the opportunities that sharp price swings can bring for those with strong nerves. But good news is emerging now for those who prefer safer strategies: some of the best returns this year have come from stable stocks like billionaire Warren Buffett’s holding company Berkshire Hathaway or Swiss toilet maker Geberit


How To Be Smarter About Risk Management
Morningstar, via Seeking Alpha
In isolation, risk is neither good nor bad. Finance 101 teaches that the market must offer higher expected returns as an asset’s probability of declining in value or the potential magnitude of losses increases. Otherwise, given the choice between two investments, no one would hold the riskier one.


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