Lead Stories

Market Risk Lowest on Record in Bank of America Volatility Gauge
Bloomberg
Volatility in global commodities, currencies, stocks and rates dropped to a record as the world’s biggest central banks pumped financial markets with liquidity to help stimulate growth amid low inflation.
Bank of America Corp.’s Market Risk Index (VIX) dropped to minus 1.27 on June 6, the lowest reading since at least 2000. JPMorgan Chase & Co.’s Group-of-Seven Volatility Index of currencies closed at a record-low 5.61 after a government report showed U.S. jobs gains were close to economist forecasts, fueling bets the Federal Reserve won’t adjust its monetary-easing policy. European Central Bank officials last week unveiled new measures to stoke the euro-area economy.
http://jlne.ws/1pwXcGT

Traders Bet on China Bank Rebound Amid Economic Revival
Jonathan Burgos – Bloomberg
Options traders are turning bullish on China’s biggest lenders, betting that a revival in Asia’s largest economy and government growth measures will lift the shares from near record-low valuations.
Calls with an exercise price 10 percent above Industrial & Commercial Bank of China Ltd. (1398), the nation’s biggest lender, cost 3.7 points more than puts betting on a 10 percent slide at the end of last week, according to three-month options data compiled by Bloomberg.
http://jlne.ws/1pwLPPc

Market volatility plummets to multiyear lows
Ralph Atkins and Michael MacKenzie – Financial Times
Global markets are less volatile than at any time in almost a decade as central bank intervention has sent share prices to record highs and interest rates to historic lows.
Gauges of market volatility for currencies, equities, bonds and oil have all plummeted, with analysts attributing the falls to the widespread view that official interest rates will remain exceptionally low for a long time.
http://jlne.ws/1hBE3Ds

The VIX Is Not A Great Way to Measure Complacency
Bloomberg
Matt Levine – Bloomberg
A basic story that is told over and over again about financial markets is:
– Things mean-revert.
– A thing is away from its mean.
– Therefore that thing will mean-revert.
– Soon and horribly.
This is I think roughly the way to read the notion, which my Bloomberg View colleague Mohamed El-Erian examined today, that low readings on the VIX — an index of implied volatility in short-dated S&P 500 index options — mean that the market is “complacent.”
http://jlne.ws/TBlvrW

Valuations Continue Higher Amid A Very Low VIX – Weekly Market Outlook 6/8/14
Price Headley – CBOE Options Hub
It’s easy to forget just how unpredictable and how emotional the market can be at times.  Last week was a reminder of that reality.  Once we got the slightest of nudges a couple of weeks ago, bored/impatient investors started seeing every glass as half full rather than half empty.  Right or wrong, sometimes that’s all it takes.  The problem with those knee-jerk, impulse moves is, they rarely last.  And, considering that we’ve yet to see any real volume behind the rally to date, the lack of interest and participation in it suggests the tank may be at or near empty.
http://jlne.ws/TBawPl

Should low volatility be a worry? [Video]
Financial Times
The Chicago Board Options Exchange’s Vix index of volatility is at a seven-year low. Should investors be worried about complacency? Jay Caauwe, managing director of CBOE’s futures exchange, tells the FT’s Philip Stafford why these are different times.
http://jlne.ws/1pwW4mv

Volatility Trading Digest – Small Caps Respond
The Options Insider
For several weeks, our focus has been on the divergence between the major large capitalization averages, representing stocks with good volume and liquidity along with reasonable dividends and the lagging smaller capitalization issues while commenting eventually the continuing disparity will be resolved either by the big capitalization indexes declining, or by the laggards finding support and turning higher. Last Thursday, in response to the ECB announcements the small – caps, representing greater risk, came alive.
In this issue, we explore the obvious question, can the small – caps continue higher and are the major indexes overbought and due to retest breakout highs?
http://jlne.ws/1pwWMQF

What It’s Like Being A Trader Out Of Work
Linette Lopez – Business Insider
“Sometimes I look at these guys resumes and I say, you’re kind of f—d man,” said Jesse Marrus, founder of Wall Street recruiting site StreetID.
The guys are traders, without a doubt the rowdiest, riskiest bunch on Wall Street with a very singular skill.
And right now demand for that skill is plummeting. The market is quiet so it’s hard for them to make money.
http://jlne.ws/TBfziO

VIX at 2007 low is like sensory deprivation for stocks – Market Snapshot
Wallace Witkowski – MarketWatch
Low stock trading volume and volatility are messing with investors’ heads, fogging their view of the stock market. One analyst thinks these doldrums could turn out to be the new norm.
Once again, the Dow Jones Industrial Average and the S&P 500 Index finished the week at record closing highs and the Russell 2000 Index finally broke back into a gain on the year.
http://jlne.ws/TBfSKo

Examining the VIX at Seven-Year Lows
The VIX hit a more than seven-year low on Friday
Adam Warner – Schaeffer’s Investment Research
It’s been a long time since we were able to say the CBOE Volatility Index (VIX) needs a rally just to get to 11. It was Feb. 23, 2007. The VIX closed at 10.58, slightly up on the day. It was a Friday. It would lift a little on Monday, Feb. 26. It closed at 11.15, even though the S&P 500 Index (SPX) was down slightly. Hey, “Monday Effect,” anyone?
On Feb. 27, 2007, the market got plowed, and the VIX rallied 64%. I believe that was the one-day record VIX lift in percentage terms, and is still the record.
http://jlne.ws/1kYM5Wl

Complacent markets: something to worry about?
Leslie Shaffer – CNBC
With the market’s traditional measures of risk giving off Pollyanna-like signals of complacency, some analysts are wondering if investors should worry about not being worried.
Indicators signal clear sailing ahead: credit spreads are narrowing, suggesting little concern about default risks, and the CBOE volatility index is hovering around pre-financial crisis levels.
http://jlne.ws/1pwZrtL

Where Securities Trade Dictates Tax Treatment
Robert A. Green – Forbes
Section 1256 of the Internal Revenue Code offers up to 12% lower capital gains tax rates on short-term trading with its attractive 60/40 tax rates. It includes regulated futures contracts (RFCs), broad-based stock indices, options on those indices, options on futures, nonequity options, certain off-exchange foreign currency contracts and a few other items.
http://jlne.ws/TBk90t

Exchanges

CBOE Futures Exchange Set For June 22 Launch Of 24-Hour VIX Futures Trading
Press Release (CBOE)
CBOE Futures Exchange (CFE) confirmed today that it will extend trading hours for CBOE Volatility Index (VIX Index) futures to nearly 24 hours a day, five days a week, starting Sunday, June 22. In March, CFE announced June 22 as its planned launch date.
The trading week for VIX futures at CFE will begin each Sunday at 5:00 p.m. CT and end on Friday at 3:15 p.m. CT.  CFE will close for 15 minutes between 3:15 p.m. CT and 3:30 p.m. CT, Monday through Thursday, after which the next trading day will begin at 3:30 p.m. CT.
http://jlne.ws/1pwZUvT

Euroclear Bank’s international ETF structure premiers on BATS Chi-X Europe
Press Release (BATS)
Euroclear Bank, a world leading international central securities depository, in partnership with BATS Chi-X Europe (BATS), the continent’s largest stock exchange announce the first exchange – traded fund (ETF) to be listed on BATS with an international securities structure. The iShares MSCI USA Dividend IQ UCITS ETF, which will be available to trade on BATS from today marks a further step forward in the two firms’ efforts to streamline ETF trade processing and settlement in the European market.
http://jlne.ws/1kZxVzE (PDF)

Intercontinental Exchange Completes First Phase of Liffe Transition to ICE Platform; Liffe US Interest Rates Successfully Transitioned
Press Release (ICE)
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today provided an update in relation to the transition of the Liffe futures and options contracts to the ICE futures exchanges, trading platform and clearing infrastructure.
On June 9, 2014, the following Liffe U.S. interest rate futures were successfully transitioned to ICE Futures Europe and ICE Clear Europe.
http://jlne.ws/TBi98w

Regulation and Enforcement

Exchanges’ Regulatory Disconnect
Steven M. Sears – Barron’s
The world is a global flow chart for capital, but its exchanges are increasingly concerned about becoming islands of regulatory complexity.
This disconnect in an age of increasingly globalized bank operations and interconnected economies emerged as a key issue at the 31st International Options Market Association meeting held in Moscow in late May. Exchanges are confronting complex postcrisis regulatory regimes enacted by governments in the U.S. and Europe and intended to protect against another financial crisis.
http://jlne.ws/1ihfcje

Market Participants Assess CFTC Makeover
MarketsMedia
The Commodity Futures Trading Commission has a new permanent chairman and two new commissioners as it steers the commodities and futures markets through a turbulent era.
Timothy Massad, the CFTC’s chairman and new commissioners Sharon Bowen and Chris Giancarlo will be confronting the continuing evolution of OTC derivatives from a bilateral, bespoke product to one that’s traded on exchanges and SEFs, centrally cleared, and reported to swap data repositories. They also need to deal with cross-border regulatory issues and the continuing “electronification” of derivatives markets.
http://jlne.ws/1pwXAFj

Options trader admits fraud
Mail Online
A stockbroker who used his investors’ money to repay others and fund part of an advance fee for a $US20 million loan has admitted fraud charges.
Gregory Alan Arnott, 51, entered guilty pleas to 10 Crimes Act charges brought by the Serious Fraud Office when he appeared in Auckland District Court on Monday.
http://jlne.ws/TBfMCz

Strategy

Shorts Reload in S&P 500 Ritual That Signaled Gain Before
Callie Bost – Bloomberg
For five years it’s been the fate of American short sellers to be wrong, as the biggest rally since the Internet bubble steamrolled defensive trades.
They’re loading up again, sending bearish wagers in the SPDR exchange-traded fund tracking the Standard & Poor’s 500 Index to almost 11 percent of its shares, the highest proportion since 2012, according to data compiled by Bloomberg and Markit Securities Ltd. Bets against a technology ETF are 67 percent above the 12-month average.
http://jlne.ws/TBp1Te

EUR Strangled By Options And Yield
Dean Popplewell – Investing.com
Today is starting off rather anticlimactic, especially after last weeks fundamental events, where market participants spent weeks building up and buying into various scenarios depending on what the ECB was to bring forth and on the strength of US jobs market. Draghi and company ended up deciding to throw their whole tool bag at the euro-zones potential deflation concerns and growth problems – a tad more ‘dovish’ than had been expected.
http://jlne.ws/1px47Qd

Options Education

What We Talk About When We Talk About The VIX
Myles Udland – Business Insider
People on Wall Street are talking volatility and how little of it there seems to be right now. Simply put, volatility is how much and how fast the price of an asset, for example a stock or a bond, changes.
To track this volatility, Wall Street watches the CBOE Volatility Index, or the VIX. The VIX is one of the most closely watched indicators in the market, its just not exactly what some people think it is.
http://jlne.ws/1px5xKt

 

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