Observations & Insight
VIX Weekly Futures Prices Rose 42% in First Week of 2016
Matthew Moran, CBOE Options Blog
Jan. 10, 2016 – The first week of 2016 was a challenging one for many financial markets worldwide, as (1) It was the worst opening week of the year in history for both the S&P 500 Index (SPX) and the Dow Jones Industrial Average, (2) The Shenzhen Composite Index of Chinese stocks fell 14.2%, (3) Crude oil futures (Feb. WTI) fell 10.5%, and (4) The U.S. dollar posted its biggest weekly loss vs. the yen since August 2013.
***DA: For a graphical representation, have a look at the chart below, and click it to read the full story.
Survey Says – Give the readers what they want!
John Lothian News
Today we are kicking off our 2016 survey campaign. Help us help you by giving us three minutes of your time and sharing your thoughts when we send out the survey later today. If you absolutely positively cannot wait until the invitation, (sigh), fine. It’s already live and you can take it by clicking HERE
No Hedges? No Problem for Stock Traders Used to Resilience
With U.S. stocks off to the worst-ever start to a year, equity investors accustomed to swift market rebounds haven’t seen as much of a need for downside protection. It may come back to haunt them. In one example from the listed options market, the ratio of bearish to bullish contracts on an exchange-traded fund tracking the Standard & Poor’s 500 Index sits 15 percent below its one-year average, according to data compiled by Bloomberg.
Emerging-Market Stock Volatility Surges Most in 224 Weeks: Chart
Costs to protect against losses in developing-nation stocks posted the biggest weekly increase in more than four years.
The January SPY Strikes That Could Pose a Serious Threat
Last week, with S&P 500 Index (SPX – 1,922.03) futures indicated significantly lower, and trading down to the significant 2,000 millennium area, we indicated that with an early standard January expiration cycle, it wasn’t too early to begin focusing on the SPDR S&P 500 ETF Trust’s (SPY – 191.92) open interest configuration for clues as how much additional damage could occur between then and January expiration this coming Friday.
FX Options Most Rapidly Growing Derivatives in the Industry
his morning in London, Thomson Reuters issued an announcement highlighting the growing turnover of FX options throughout 2015. However according to the broader data that the Bank of International Settlements is collecting, this is not an isolated case. With the first half of the year being mundane in terms of growth in the space, the final quarter has seen a big increase in activity.
TABB Group Strengthens Global Derivatives Research and Consulting Practice with Addition of Tom Lehrkinder and Callie Bost as Analysts
NEW YORK & LONDON–(BUSINESS WIRE)–TABB Group has hired Tom Lehrkinder and Callie Bost as research analysts to further strengthen their derivatives practice. Lehrkinder and Bost are based in New York and will focus on the global listed derivatives markets for TABB’s research and consulting practices, reporting to Andy Nybo, partner, global head of research and consulting.
The Future Of Crude Oil Futures Volatility
Many crude oil market observers point to current global inventory levels to explain today’s low prices. The recent price decline is also attributed to concern about possible future decline in Chinese demand growth. The problem with both of these explanations is that no one can describe with sufficient certainty the causal relationship between current crude oil inventories or future Chinese consumption and the future price of crude oil. To paraphrase economist Mohamed El-Erian the crude oil market may simply be “repricing to a new volatility paradigm.”
***DA: Both WTI and Brent crude vol screaming above 50% today.
Fear makes oil options expensive
The gap between implied volatility and actual volatility has grown to almost its widest since the financial crisis. The price of oil options is soaring amid increasing uncertainty about the outlook for prices and indicating a mismatch between strong demand from hedge funds and caution among option sellers.
CME Group: Trading Activity Slows Down in December, But Sets Volume Record For The Year
After a sustained period of high trading activity through the year, CME Group (NASDAQ:CME) witnessed a slowdown in the fourth quarter of 2015. Average daily volumes (ADVs) declined by 4% on a year on year (y-o-y) basis to 13 million trades per day in December and by 11% y-o-y to 13.2 million trades per day in the fourth quarter. However, despite slow trading activity in the last quarter, the first nine months helped CME Group average a record 14 million trades per day in 2015, a growth of 2% annually.
EEX Group Achieves Impressive Results Across All Markets
The European Energy Exchange (EEX) enjoyed a successful 2015 and was able to further extend and strengthen its position as the leading European energy exchange. As a result of the expansion of EEX Group with Powernext and EPEX SPOT, which have been fully consolidated since 2015, and Gaspoint Nordic as well as the introduction of new products, it was able to significantly increase its trading volumes and gain further market shares compared to the over-the-counter market.
Dubai gold futures market posts record trading volumes
DUBAI, Jan. 11 (Xinhua) — The Dubai Gold and Commodities Exchange (DGCX) said Monday it closed 2015 with record-breaking trading volumes of over 14.5 million contracts, an increase of 23 percent year-on-year.
Regulation & Enforcement
China volatility could derail market liberalization
Market corrections against a backdrop of political interference have thrown China’s liberalization off course, says a Shanghai-based fund.
Unintended Consequences of Regulatory Onslaught will Hurt Wall Street but Cripple Main Street
While finalized and pending tax initiatives have been promoted as ways to simplify the U.S. tax system, eliminate current loopholes and raise revenue for the U.S. government, the potential impact of these regulations on the U.S. listed options market may be problematic, says TABB Group in new research, “Unintended Consequences: Tax Regulations and the US Listed Options Market,” that delves into these repercussions.
***DA: We included this item on Friday, but as it was our most-clicked item, both here and in the John Lothian Newsletter, we are including it again.
Plans to revise or repeal Dodd Frank
In this election year, the economy is a priority issue. Democrats and Republicans have proposed economic policies and many include revisions to existing regulating policies like the Dodd Frank Act. –
In response to the 2008 financial crisis, President Obama signed the 2010 Dodd Frank Act, introduced by Massachusetts Representative Barney Frank.
The concern over Federal Bailouts should support the need for financial regulations. Efficient regulation can be a comparative advantage, especially in a multi-trillion dollar economy.
SAP and Accenture Join Forces in Core and Industry Platform Development and Go-to-Market for SAP S/4HANA
SAP SE (NYSE:SAP) and Accenture (NYSE:ACN) are joining forces in the core and industry development and go-to-market of SAP Business Suite 4 SAP HANA (SAP S/4HANA), the next-generation business suite from SAP built on the industry’s most advanced in-memory platform. This unprecedented collaboration intends to accelerate development of SAP S/4HANA as well as industry and line-of-business solutions, with a view to simplifying and fast-tracking customers’ journeys to digital businesses.
OptionRally to Release Its Annual Tech Stock Sector Analysis
LONDON–(BUSINESS WIRE)–OptionRally is expected to publish its 2016 tech stock sector report to its clients during the coming month. The report presents a positive outlook for tech stocks prices, suggesting that investors should go long on these stocks at this point.
Eternally Internal: WH Trading CTO Mike Madigan
Mike Madigan has spent nearly 15 years at Chicago-based WH Trading, building the proprietary trading firm’s technology from the ground up. The CTO talks with Dan DeFrancesco about developing the firm’s technology for trading in the futures and options markets, and the importance of keeping a majority of the technology in-house.
***DA: Great piece on my favorite Mike Madigan in Chicago. I was there, as one of the junior traders at Cooper, Neff & Associates when we hired him into this business. We’re both still here.
Keep 80% of your money in stocks: Asset allocator
Stocks have had a historically rough start to the year, with the S&P 500 (INDEX: .SPX) falling 6 percent for its worst week of losses since 2011. But despite the rocky road, one director of asset allocation says stocks should still play a large role in an investor’s portfolio.
F&O view: Put writing at 7,500 can provide support to Nifty50
NEW DELHI: The Nifty50 broke below its crucial support level of 7,500 in morning trade on Monday, but managed to claw back above that level quickly. The index has defended this level twice in the past six months and has, therefore, thus become an important level for traders. – economictimes.indiatimes.com
Going by the options activity, strike price 7,500 has maximum concentration of Put OI at 58.91 lakh contracts.
MKM’s Jon Krinsky: Buy Low Volatility Stocks, Sell High Beta Stocks
After the worst opening week for the S&P 500 in history, MKM Partners analyst Jonathan Krinsky now believes that traders should be ditching high-volatility stocks in favor of safer, low-beta names. The S&P 500 dropped nearly 6.0 percent in the first week of 2016 trading, its largest weekly decline since 2011.
Perfect Earnings Season Record for S&P 500 Is on the Line
One of the best ways for investors to have made money in U.S. stocks last year was to acquire them just before earnings season began. Bulls need that trade to work now more than any time in the past few years.
How to Stay Calm in a Volatile Market
Investors shouldn’t try to time the market during dips – unless they’re planning to lose a lot of money.
***DA: In my trading career, I never PLANNED to lose money. Sometimes it just happened. Still does.
Volatility Update: Things might look bad, but you have options
Georgio Stoev – Saxo Group
Not only were August’s narratives revisited last week, but so were key technical levels in the EuroStoxx 50 (at 3,000) and the S&P 500 (at 1,875). These movements are why we are seeing increased demand for hedging in the options market. At the same time, volatility as measured by the CBOE Volatility Index, or VIX, exploded by 20% for the week to finish at $27.01 – bear country by anyone’s measure! The jump in implied volatility also made options on equities and indices more expensive.
The VIX curve moved from flat to backwardation as the S&P 500 dropped almost 5% to begin the year. We finished the previous week with the curve pretty flat which is often considered an indication of uncertainty among volatility traders.