January Effect: Fact or fiction?
There is some confusion regarding the term “January Effect” in equity markets. Investopedia defines it as a general increase in stock values in the month of January due to investors getting back into the market after exiting in December for tax purposes.
This appears to have completely disappeared as the performance of the Standard & Poor’s 500 Index in the month of January is -1.60 from 2009 through 2014 yet still positive, 0.94, from 1950 to the present. Perhaps the notion of window dressing—where allocators buy successful stocks in December to claim them in their portfolio only to dump them in January—is more common than the old tax trade, which generally is no longer necessary.
***DA: In some years, the Santa Claus rally overshoots the mark, thereby muting the January effect.
Dissecting VIX Volume Trends
Russell Rhoads – CBOE Options Hub
I was lucky enough to join The Options Institute at the Chicago Board Options Exchange in April 2009. This has been a wonderful place to work as each day is different and almost every day I learn something new. Back in high school, a discipline heavy all-boys school, the head football coach was my homeroom teacher for freshman year. Coach Nix would send us off with the same words each day, “If you learn one new thing each day this year you will know a lot of new things at the end of the year.” I always liked that.
***DA: April 2009. Wow; pretty much nailed the low there.
For a market that relishes certainty, more volatility
Kate Gibson – CNBC
The U.S. stock market will have ample micro and macro factors to digest and trade on in the week ahead, including a slew of earnings and Friday’s nonfarm payrolls report. The one near-certainty is that January’s overriding theme of volatility will continue.
The CBOE Volatility Index, a measure of investor uncertainty, jumped nearly 12 percent on Friday, leaving it up almost 26 percent for the week.
***DA: If I had a dollar for every time someone predicted a continuation of recent volatility, I would have about 50 bucks.
When It Comes to VIX, What is ‘Normal’?
Adam Warner – Schaeffer’s Investment Research
Another week, another CBOE Volatility Index (VIX) PANIC ATTACK! But yet it’s not really a panic. The market is so prone to bigger ranges and reversals and plus-1% drops nowadays, it’s tough to call it unwarranted. In fact, it’s downright sane.
VIX closed at about 21 last week, but yet did not register an “official” overbought signal yet. It closed Friday 13% above its 10-day simple moving average (SMA). Let’s call it “elevated but orderly.”
***DA: Perfect description. A little perspective here, right?
The Week in VIX – 1/26 – 1/30
Russell Rhoads – CBOE Options Hub
The stock market continues to be jittery with the S&P 500 dropping almost 3% last week. This price action resulted in a 25% move higher in VIX. I was in the classroom most of Friday so I wasn’t as focused as I would like to have been on the intraday price action.
India VIX Advances to Eight-Month High as Stocks Extend Retreat
Santanu Chakraborty – Bloomberg
The benchmark gauge of Indian option prices advanced to an eight-month high as stocks fell for a second day before the central bank’s decision tomorrow on interest rates.
The India VIX, a measure of protection against stock market swings, rose 1.2 percent to 21.41 at the close in Mumbai. The CNX Nifty Index slid 0.1 percent to 8,797.40, adding to its 1.6 percent tumble on Friday, the steepest in three weeks.
RBI to introduce new derivatives products
Alice Attwood – Futures & Options World
The Reserve Bank of India (RBI) is considering the introduction of new derivatives products and allowing new options trading strategie to protect investors from the volatility of the foreign exchange market.
Deputy Governor of the RBI, Harun Khan, said the RBI is committed to offering a range of derivatives products wide enough that market participants can choose them according to their cost and risk management requirements.
Draghi Spurs Bulls to Ditch U.S. Equities for Europe: Options
Inyoung Hwang and Sofia Horta E Costa – Bloomberg
Equity investors are switching their allegiance to Mario Draghi from Janet Yellen.
Anticipation of more stimulus from the European Central Bank triggered a record amount of money into an exchange-traded fund that tracks the region’s stocks while hedging against currency moves. The Stoxx Europe 600 Index posted its best January since 1989, while the Standard & Poor’s 500 Index had its worst month in a year, with traders pulling more money than ever before from an ETF tracking it.
***DA: Western Europe is now a hotbed of hot money? Beware: we know how that movie ends.
Gov’t Vow Lures Option Bulls to National Bank of Greece (NBG)
Andrea Kramer – Schaeffer’s Investment Research
The shares of National Bank of Greece (ADR) (NYSE:NBG) are up 10.9% at $1.22, after a spokesman for Greece’s new government said it “will not appoint party officials at the management of banks,” and vowed to “not do anything that would hurt the share value of banks.” Against this backdrop, NBG calls are trading at twice the average intraday clip, with speculators hoping for an extended short-term rebound.
***DA: Welcome to the world of geometric returns. A 10.9 percent move in one day? Sounds great, until one considers that amounts to 12 cents, and when one considers the bank was worth about five times that amount a year ago.
NSE extends fee discount for currency futures, equity options
The Economic Times
Leading bourse National Stock Exchange (NSE) has extended discount of up to 50 per cent in transaction charges for trading on its currency derivatives platform and in equity options segment for two more months.
The NSE in November had announced concession in transaction charges for currency futures trade and equity options segments. These were applicable from December 1 and continued till January 31, 2015.
GFI Investors Said to Reject CME, Clearing Path for Lutnick
Matthew Monks and Zeke Faux – Bloomberg
GFI Group Inc.’s shareholders rejected CME Group Inc.’s takeover proposal, clearing the way for them to accept a bid by Howard Lutnick’s BGC Partners Inc., a person briefed on the decision said.
CME’s $5.85-a-share proposal failed to win approval from the brokerage’s investors at a meeting Friday in New York, said the person, who asked not to be identified because the results haven’t been publicly announced.
ICE Benchmark Administration to Administer the LBMA Gold Price from March 2015; LBMA Gold Price to replace the London Gold Fix
Press Release – ICE
Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, and the London Bullion Market Association (LBMA), have today announced that the new LBMA Gold Price, which replaces the long established London Gold Fix, is expected to be launched in March 2015. As announced by the LBMA in November 2014, ICE Benchmark Administration (IBA) will officially become the administrator of the new pricing mechanism.
As the administrator for the LBMA Gold Price, IBA will transition to a physically settled, electronic and tradeable auction, with the ability to participate in three currencies: USD, EUR and GBP. Within the process, aggregated gold bids and offers will be updated in real-time with the imbalance calculated and the price updated every 30 seconds. IBA will use ICE’s widely distributed front-end, WebICE, as the technology platform which will allow direct participants, as well as sponsored clients, to manage their orders in the auction in real time via their desktops.
Euronext Amsterdam appoints CEO
Press Release via Automated Trader
Euronext has announced the appointment of Maurice van Tilburg as chief executive officer (CEO) of Euronext Amsterdam with immediate effect, pending regulatory approvals.
Mr. Van Tilburg has almost 20 years’ experience in the exchange sector. Until this appointment, he was Head of Business Projects & Design of the European Equity and Equity Derivatives Markets at Euronext, where he was responsible for the process reform of business initiatives and project delivery of new products and services. Prior to that Mr. Van Tilburg was in charge of issuer support and execution of corporate actions across all Euronext Cash Markets in Europe. Mr. Van Tilburg started his career in the exchange sector in 1995 at the EOE Options Exchange in Amsterdam and then moved to Euroclear Netherlands where he was responsible for the operational delivery of all settlement and custody services for the Dutch market.
Regulation and Enforcement
White House to Request $1.7 Billion for SEC
Andrew Ackerman – WSJ
The Obama administration is expected to seek a modest funding increase for U.S. securities regulators charged with implementing and policing tough new rules for the financial industry.
The Securities and Exchange Commission would see its funding levels rise about $200 million to $1.7 billion under the White House’s 2016 budget blueprint, according to people familiar with the matter. The Obama administration is set to unveil the proposal Monday. The plan would fund the federal government for the fiscal year beginning Oct. 1.
A Stable Play in Volatile Markets
Steven M. Sears – Barron’s
Corning’s stock looks as tough as Gorilla Glass. After reporting robust earnings, the stock is consolidating recent gains around a 52-week high. Corning ’s performance is notable as the broad market convulses in confusion over predicting the endgames of European and U.S. quantitative-easing programs. But corporate fundamentals, especially a good earnings report, are easy to understand.