JLN Options: Last Week in VIX; CBOE Holdings: Still Growing, Still Expensive; Volatility Update: Stalking Joe Consumer

Nov 10, 2014

Observation and Insight

A Perfect Ten? CBOE’s Latest Vol Contract Could Be A Stunner
Sarah Rudolph – John Lothian Newsletters

The CBOE Futures Exchange announced it will launch futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (ticker symbol: VXTYN) on November 13.  It is calculated by applying the CBOE Volatility Index (VIX) methodology to futures options data from CME Group’s 10-year U.S. Treasury note contract — one of CME’s most actively traded interest rate options products. CBOE calculates and disseminates the VXTYN Index values as part of an agreement between CBOE and CME Group.

JLN’s Sarah Rudolph spoke with John Angelos, director of institutional marketing, U.S. and head of Asia Pacific at the Chicago Board Options Exchange (CBOE) in advance of the launch, to find out more details about the contract’s design, potential users, and what makes it unique.

Read More –> http://jlne.ws/10NqMjd

Lead Stories

Last Week in VIX – 11/9/2014
Russell Rhoads – CBOE Options Hub
This weekend I felt like Ed Rooney. Not Ed Rooney after Ferris Bueller’s sister kicks him in the face 12 times, Ed Rooney when he kept repeating nine times to Ferris’s mom, however my number was 38. I decided to take a look at what the volatility markets did each day the S&P 500 made a new high in 2014. I was genuinely surprised to see 38 record highs for the S&P 500 this year.
http://jlne.ws/10Nnhcx
***JK – Mr. Rhoads is making me nervous.

CBOE Holdings: Still Growing, Still Expensive
Ashleigh Rogers – Seeking Alpha
What is the proper price for a secular growth story in an otherwise stagnant industry? This is a tough question to answer of course and it is one that shareholders in Amazon (NASDAQ:AMZN) might ask in relation to the retail industry. But in this case I’m not talking about Amazon. The company I refer to here is CBOE Holdings (NASDAQ:CBOE).
http://jlne.ws/10NdAen

Volatility Update: Stalking Joe Consumer
JJ Kinahan – Forbes
How dramatic was the change in volatility in the past four weeks? Check this out: during the month of October, the S&P 500 saw average daily moves of 18.5 points, or double the daily swings seen in September. During the first week of November, the S&P’s average daily move has been closer to a mere 5 points.
Now that a lot of event risk has passed (including meetings by the world’s most powerful central banks, a swivel to Republican control of the U.S. Senate, and a trio of job-market reports ), focus this week will center on the last batch of major Q3 earnings and potentially pivotal results from the retail world.
http://jlne.ws/10NjID8
***JK – Neither Republicans nor Democrats will add volatility to markets – but other events might.

October Is Forgotten as Credit Suisse Fear Gauge Plummets
Callie Bost – BloombergBusinessweek
If you’re wondering whether the market meltdown of early October left stock investors with any lingering sense of anxiety, it didn’t.
After surging to a record, the Credit Suisse Fear Barometer, which compares bearish to bullish options prices three months from now, retreated to the lowest level in more than a year. Another measure of investor concern, the cost of protection against a 10 percent drop in the Standard & Poor’s 500 Index, has slipped to the lowest in two months amid a record rally in stocks, according to data compiled by Bloomberg.
http://jlne.ws/10NeLua

Santa Claus rally inevitable but market isn’t in the clear, technically
Jeff Greenblatt – Futures Magazine
Markets survived October and before you know it, Christmas will be here. What does that mean for us?
It’s almost time for the Santa Claus rally. The media thinks the Santa rally starts right at Christmas, just like they think 10% is a correction and 20% is a bear market. The truth of the matter is a Santa rally can kick in any time after Thanksgiving. Traditionally, we do get a rally in December unless the markets truly are in a bear. Since they are not, odds are high we will have a Santa rally this year. But will markets go straight up from Oct. 15 (the recent low) to the end of the year? I think not.
http://jlne.ws/10NbBXn
***JK – We haven’t even hit Thanksgiving and we’re already talking the Santa Claus rally?

For Stocks in 2014, Even Volatility Is Volatile
Paul Vigna – WSJ
We all know that October was a volatile month, but one measure puts that volatility into stark perspective.
Most people are familiar with the VIX, the CBOE Volatility Index. It uses options prices to measure the expected volatility of the S&P 500 index. A lesser known index is the RVX, the CBOE Russell 2000 Volatility Index. This uses the exact same formula as the VIX, but applies it to the Russell 2000′s stocks.
http://jlne.ws/10Nmfxo
***SR: Patrick Fay (of Russell Indexes) has a way with metaphors.

Jobs Data Don’t Alter Investing Climate
E.S. Browning – WSJ
The jobs report was soft, with weaker wage growth and fewer jobs created in October than economists expected. Worried that the report signaled a sluggish economy, bond investors knocked yields down to late-October levels. Stocks moved sideways.For investors, however, the report was more positive than negative. It showed that wage gains still aren’t big enough to push inflation higher. Instead, the investing backdrop continues to be one of low inflation, moderate economic growth and low interest rates, all good for financial markets. It means the Federal Reserve can take its time raising rates next year.
http://jlne.ws/10NkDn5

Where Will Risk Erupt This Time?
Charles Hugh Smith – Seeking Alpha
So where has all the risk pooled up in the system? In foreign exchange (FX) markets, that’s where.
One of the precepts of this blog is that risk cannot be disappeared, it can only be transferred or temporarily hidden from view. This runs counter to modern portfolio management, which holds that all risks can be hedged with counterparty-issued securities, i.e. options, futures contracts, derivatives, etc.
This also runs counter to the Central Banking Cargo Cult, which holds that any eruption of risk can be smothered by the unlimited liquidity spewed by omnipotent central banks.
http://jlne.ws/10NleW4

Exchanges

Asian Exchanges Adopt Controversial Counting Method For Futures Trades
Jon Southurst – Coin Desk
Trading volumes reported by exchanges in Asia became a talking point again over the past weekend, after some companies altered the way trades are counted on bitcoin futures markets.
The latest issue arose last week when OKCoin’s manager of foreign operations Zane Tackett posted a thread on reddit’s ‘Bitcoin Markets’ page, titled “You might have noticed OKCoin futures volume experienced a sudden rise (doubled) over night, here’s why”.
http://jlne.ws/10NcmQc
***JB: “Then shalt thou count to three, no more, no less. Three shall be the number thou shalt count, and the number of the counting shall be three. Four shalt thou not count, neither count thou two, excepting that thou then proceed to three. Five is right out.” ~Monty Python and the Holy Grail

CME Group Announces Record Open Interest for NYMEX Brent Futures
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced its NYMEX Brent (BZ) crude oil futures contracts set an open interest record on Thursday, November 6, 2014. Open interest for NYMEX Brent set a record of 155,713 on November 6, surpassing the 150,000 contracts milestone for the first time ever. The previous open interest record of 149,955 contracts was set on November 5, 2014.
http://jlne.ws/cjpXe7
***JK – 1,250 Brent options were traded that day.

OCC Announces Tracy Raben as New Chief Human Resources Officer
Press Release – OCC
OCC announced today that Tracy Raben has joined OCC as Senior Vice President and Chief Human Resources Officer. She will report to Mike McClain, President and Chief Operating Officer.
Ms. Raben most recently served as Chief Human Resources Officer for Prospira Paincare, Inc. in California where she was responsible for leading the Human Resources division in all capacities including the development and implementation of strategy, tactics and operations.
http://jlne.ws/10NqmJK

Regulation and Enforcement

Regulators Consider Easing Volcker Trading Rules
Cheyenne Hopkins and Ian Katz – Bloomberg
U.S. regulators are considering changes to the Dodd-Frank law that could ease requirements on the Volcker Rule’s trading restrictions.
Scott Alvarez, the Federal Reserve’s general counsel, said the central bank is reviewing whether to extend a deadline for implementing the Volcker Rule and changing “metrics” used in the regulation. He said a rule requiring banks to separate their derivatives trading from units that benefit from federal backstops should be revisited.
http://jlne.ws/1uSEnDq
***JB: Give with one hand…

‘Too big to fail’ bank rules unveiled by global regulators
BBC News
The rules, created by the Financial Stability Board (FSB), a global regulator, will require big banks to hold much more money against losses.
Mark Carney, FSB chairman and governor of the Bank of England, said the plans were a “watershed” moment.
He said it had been “totally unfair” for taxpayers to bail out banks after the financial crisis of 2008 and 2009.
http://jlne.ws/1wLZGFW
***JB: …and take with the other.

A Blank Page in the S.E.C. Rule Book, Four Years Later
Gretchen Morgenson – NY Times
It’s something that almost everyone can agree on: Executives should return compensation earned improperly as a result of accounting shenanigans at their companies.
But four years after Congress told the Securities and Exchange Commission to write a rule making it easier to recover unearned pay, that rule remains unwritten. Compensation clawbacks, therefore, are all too rare.
http://jlne.ws/10NfThh

Events

31st Annual CBOE Risk Management Conference U.S.
Press Release – CBOE
The Chicago Board Options Exchange (CBOE) and CBOE Futures Exchange (CFE) will host the 31st Annual CBOE Risk Management Conference (RMC), from March 4 through 6, 2015, at the Park Hyatt Aviara in Carlsbad, California.
WHAT:     31st Annual CBOE Risk Management Conference U.S.
WHEN:     Wednesday, March 4 through Friday, March 6, 2015
WHERE:     Park Hyatt Aviara, Carlsbad, California
INFO:     www.cboermc.com

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