Hedge Funds Pare Russell 2000 Shorts as Cost of Protection Drops
Callie Bost – Bloomberg
Hedge-fund managers, a group of investors who lost faith in small-cap stocks last year just before they plunged, are now shedding their bearish bets prior to first-quarter earnings.
Large speculators pared their short positions in futures tied to the Russell 2000 Index to around the lowest level since April relative to long ones, according to data from the Commodity Futures Trading Commission. The measure of smaller companies, whose constituents have an average market value of $1.1 billion, trades 0.8 percent below a record reached March 20.
***DA: Are they seeing something in the numbers that I am not seeing? Or are they eyeing fresh central bank intervention as fuel for a new rally?
Boring No More: Poloz Sends Canadian Volatility to 2-Decade High
Cecile Gutscher and Ari Altstedter – Bloomberg
For Patrick O’Toole, the price swings Bank of Canada Governor Stephen Poloz has created in his nation’s bond market may be the best trading opportunity he’s seen in a long time.
With an unexpected interest-rate cut and sometimes shifting takes on the economic outlook, Poloz has injected something rarely seen in Canadian markets: volatility.
***DA: Isn’t a boring poloz a tool used to extract oil from tar sands?
CalPERS boosts cash return through repurchase facility
Rick Baert – Pensions & Investments
A repurchase facility announced this month with access to cash from CalPERS to cover the cost of a counterparty default — the first such agreement involving an asset owner — is shining a light on potential roles for asset owners as sources of liquidity. The one-year facility, created by the $301.7 billion California Public Employees’ Retirement System, Sacramento — in collaboration with the Options Clearing Corp. and agency securities lending provider eSecLending LLC — would provide Options Clearing with the option of a cash draw from CalPERS, facilitated by eSecLending, if a counterparty defaults on a derivatives trade.
***DA: For once, OCC is in the position of purchasing options rather than clearing them.
The Option Queen Newsletter
We are back into earnings season again, bet-ya couldn’t wait!!!! Alcoa on Wednesday yahoooeee! Can’t wait to see to forward guidance the multi-nationals will release given the strong US Dollar. Oh, and if you get too bored with the markets, we have lots of Fed-speak this week probably trying to talk down the strength in the US Dollar with more dovish talk. Then there is crude oil for more excitement. We can add to that negative interest rates abroad and the USA looks like a sure-fired winner and is enjoying the flow of investment money into the markets. Think about it, would you rather be charged to parking money at a bank or make a pittance in interest by parking money at a bank. Given the choice we would opt for being paid. That said, the currency risk would require hedging.
***DA: It’s all about that basis, ’bout that basis. No trouble.
VXX vs. XIV: A $100,000 Experiment
Adam Warner – Schaeffer’s Investment Research
We all know that iPath S&P 500 VIX Short-Term Futures ETN (VXX) declines over time. It’s down 99.6% since inception just over six years ago, so I hope we all know that.
We also know that we can go short VXX via either: going short VXX (brilliant!) or going long VelocityShares Daily Inverse VIX Short Term ETN (XIV). Vance Harwood has a good post up on the merits of shorting versus buying. In theory, the long can do better than the short over time, in that the short can only go to zero and the long can rise over 100%.
***DA: Not all products are ETN-able.
High-speed trader Virtu seeks $361m in US IPO
High-speed trading company Virtu Financial is slowly making its way to public markets.
The company plans to raise as much as $361m in an initial public offering on the Nasdaq, according to a filing with the US Securities and Exchange Commission on Monday.
***DA: Let’s try this again, shall we?
White House Derivatives Meetings Revealed, Stiglitz Concerned
Mark Melin – ValueWalk
The White House and key economists are weighing in on the unregulated derivatives risk that underlie the world economy at a time when Greece may be threatening default in what is becoming a rather unpredictable sovereign debt negotiation. Unregulated derivatives risk, which was one of the key culprits involved in the 2008 financial crash, strangely have been kept from out of sight despite the risk of negatively impacting the world economy several times over, a risk that has only grown since 2008.
Confusion About Fed Policy Causes Erratic Market Behavior
Bob Lang – Finances
March was an amazing month of volatility, 16 of the 22 trading days had the Dow Industrials moving triple digits. Yet, the VIX never exceeded 17 on a close! Why is that significant? A majority of those days were down, and that usually means players are buying protection for their portfolios. Why not this time around?
***DA: Because in this market, equities don’t go down. They offer occasional buying opportunities.
What Chicago Loses by Closing the CME’s Futures Pits
Ted C. Fishman – Chicago magazine
My identical twin brother, Zack, began clerking, and then trading, on the Chicago Board Options Exchange in 1981, when we were 23. He wasn’t among the first generation of traders at the exchange, but he was close. By then, there were already legends about traders in that first generation, for whom making money was nearly as easy as raising their hands in the air. They rendered fortunes from a witless investing public that lacked an understanding of options’ mechanics and the technology needed to price them.
***DA: Not exactly sure if this is a fitting eulogy – “witless investing public?” “FBI sting?” “Chicago mobsters?” I choose to remember a place where one’s word was his or her bond. A place where a customer could always get a market, even while the world was crashing down and the big Wall Street brokers refused to answer their phones. A place where one could see capitalism in action.
Intercontinental Exchange – Intercontinental Exchange Reports ICE and NYSE Volume for March 2015; Energy Daily Volume up 16% over Prior March
Press Release – ICE
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today reported March exchange traded volume.
ICE’s March 2015 futures and options average daily volume (ADV) declined 7% compared to March 2014.
Regulation & Enforcement
OCC Files Motion with SEC to Lift Automatic Stay of Approval Order of Capital Plan
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, today said it has filed a motion with the U.S. Securities and Exchange Commission (SEC) to lift the current stay of the approval order of its proposed capital plan. Under the SEC’s rules, the stay was instituted automatically after petitions were filed and is part of the SEC’s approval process.
***DA: As Charles Bronson would say, “dis ain’t over.”
DE Shaw, Citadel Urge CFTC to Allow Anonymous Swaps Trades
Silla Brush – Bloomberg
D.E. Shaw & Co. and Citadel LLC are putting renewed pressure on the main U.S. derivatives regulator to reduce Wall Street banks’ dominance of the $700 trillion swaps market.
U.S. denied redo in landmark insider trading case
Kaja Whitehouse – USA Today
A New York federal appeals court denied Manhattan U.S. Attorney Preet Bharara a second shot at arguing that two hedge fund managers convicted of insider trading in 2012 deserve to go to jail.
***DA: If Michael Lewis wants to say the markets are rigged, he would be better off focusing on insider trading than HFT.
Key SPX & VIX Levels to Watch: Weekly Market Outlook
Price Headley – CBOE Options Hub
Despite the solid start to the trading week on Monday of last week, Tuesday’s and Wednesday’s dips cast a shadow of doubt on stocks. Yes, the S&P 500 (SPX) (SPY) ended the holiday-shortened week with a small gain. But, once again the bulls have a big hurdle right in front of them they’ll need to clear first before we can seriously entertain bullish ideas.
We’ll analyze the current shape of things below, after painting the bigger picture with some broad economic data brushstrokes.
How To Profit From Volatility
Elvin Mirzayev – Investopedia
Derivative contracts can be used to build strategies to profit from volatility. Straddle and strangle options positions and volatility index options and futures can be used to make a profit from volatility.