JLN Options: Short Covering Boosts Speculators' Net-Long Positions In Gold, Silver, Platinum – CFTC Data; Oil Market Hopes New Year Brings More Volatility; VIX Volume Hits All-Time High in Complacent Market

Jan 7, 2014

Lead Stories

Short Covering Boosts Speculators’ Net-Long Positions In Gold, Silver, Platinum – CFTC Data
Kitco News (via Forbes)
Net-long positions in gold, silver and platinum futures and options, held by large speculators at the Comex division of the New York Mercantile Exchange and the Nymex, rose in the latest weekly commitments of traders data from the Commodity Futures Trading Commission, released Monday.

Oil Market Hopes New Year Brings More Volatility
Brett Philbin – The Wall Street Journal
Oil traders are hoping for a little excitement in 2014.
Oil prices ended last year almost exactly where they started, denying investors the chance to make money betting on big swings in the market. Options prices, a gauge of volatility, hit record lows for Brent futures, falling by about one-fifth in the last three months of the year.

VIX Volume Hits All-Time High in Complacent Market
Tom Lydon – ETF Trends
CBOE Volatiltiy Index related exchange traded funds are revealing low implied volatility, with the VIX at its calmest in at least seven years. However, trading activity on VIX futures touched an all-time high in 2013.

Invesco Adds to Line of Low Volatility Investing Options with Emerging Markets Mutual Fund
Press Release (via The Wall Street Journal)
Invesco expanded today its innovative suite of low volatility products by launching the Invesco Low Volatility Emerging Markets Fund.
Managed by Invesco Quantitative Strategies (IQS), the strategy will seek to outperform the MSCI Emerging Markets index over the long term with a lower risk profile.

US futures markets outstrip options in 2013
Trading in futures contracts across all US exchanges grew three times faster than options trading witnessing a growth of 19% during 2013.

Contrarian Warning – One Sentiment Measure Is At 1987 Levels Of Bullishness
Moby Waller – CBOE
Longtime option and sentiment trader Don Fishback passed these charts on to us — what they show is various long-term investor/advisor sentiment surveys from Investor’s Intelligence, AAII, Hulbert and Consensus. The combined Bullish Sentiment by his measure is at the highest level since August 1987 (the market dropped 22% on ‘Black Monday’ in October 1987) – see the charts below:

A VIXplosion is Coming … Tomorrow
Adam Warner – Schaeffer’s Investment Research
The CBOE Volatility Index (INDEXCBOE:VIX) in the 13s may seem kind of uninteresting, but hey, there’s always something noteworthy about it, right?
Well, sure, so let’s squint a bit and take a look.
For one thing, it’s at a larger-than-normal premium to realized volatility (RV).

The Risk Forecast for 2014
It’s the time of year when market pundits take to the notoriously difficult task of forecasting returns. Volatility is equally important, however, and it can be predicted much more reliably than asset-class performance. My forecast shows that the options market is underestimating risk in 2014, giving investors an opportunity to purchase portfolio protection at attractive prices.
**If they are right they will be rich.  Question is are they right? -JB

Videocast: Near-term VIX buying

Prepare for a little volatility this year
Proinsias O’Mahony – IrishTimes
Last year was a nerve-free ride for investors, the S&P not only advancing 30 per cent but never falling below its 200-day moving average. Will volatility make a comeback this year? An increase can be presumed, given 2013’s remarkable calm, although it is clear we are in the midst of a low-volatility cycle. The first year since 2006 that the Vix, or fear index, didn’t exceed a reading of 30 was 2012. It never got above 20, its historical average, in 2013, and ended the year at 13.5. The European equivalent, the VStoxx, averaged 18 in 2013, compared to 24 in 2012 and 30 in 2011.

RBS hires global FX options head from Santander
FX Week (subscription)
Simon Manwaring has joined Royal Bank of Scotland in London as global head of FX options, reporting to James Pearson.

RBI allows foriegn investors to use ‘Put’ and ‘Call’ options
The Economic Times
After months of dithering, the Reserve Bank of India has allowed foreign investors to use ‘call’ and ‘put’ options to structure their investments in India. But experts said the stringent valuation restriction is detrimental to new investments or joint ventures.


NYSE Euronext Announces Trading Volumes for December 2013
Press Release (NYSE)
Global derivatives average daily volume (“ADV”) of 5.9 million contracts, excluding Bclear in December 2013 decreased 7.6% compared to December 2012 and decreased 10.8% from November 2013. U.S. equity options volumes in December 2013 decreased 13.2% compared to December 2012 and decreased 9.9% sequentially. ADV in U.S. cash equities declined 8.7% year-over-year but increased 0.9% month-over-month. European cash equities ADV in December 2013 increased 13.6% compared to December 2012, but decreased 9.3% from November 2013 levels.

BOX Price Improvement Activity for December
Press Release (BOX)
In the month of December, price improved contracts on BOX Options Exchange (“BOX”) averaged 96,317 per day. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $221,410 per day, while total savings to investors this month was $4.6 MM. With this, BOX has saved investors over $467 MM since its inception in 2004. Overall average daily trading volume on BOX in the month of December was 279,815 contracts.
http://jlne.ws/1aFb8oH (PDF)

Regulation and Enforcement

JPMorgan to pay over $2 billion to settle Madoff case
David Henry and Emily Flitter – Reuters
JPMorgan Chase & Co will pay more than $2 billion of penalties to settle charges by U.S. federal authorities that it failed to report suspicious activity involving Bernard Madoff’s Ponzi scheme.
The $2 billion sum includes the largest forfeiture a bank has ever had to pay to resolve anti-money laundering violations.
**Can they sue the SEC back considering Harry Markopolos spent 10 years trying to get the SEC’s  attention about Madoff and the SEC utterly failed in catching Madoff despite Markopolos’s detailed information showing the problems? Not saying JPMorgan is innocent of all this but still…pot meet kettle. -JB

SEC to focus on stability not dark pools in 2014
Richard Henderson – The Trade
Ongoing calls for greater transparency and continued emphasis on stable infrastructure will dictate priorities for US equity market regulators this year, but the Securities and Exchange Commission (SEC) will do little to address off-exchange trading, industry insiders predict.

Derivatives exchanges raise the stakes
Jonathan Watkins – FOW
CME, Eurex and Nasdaq OMX have been gradually increasing their foothold in a range of markets with strategic stakes; ranging from around 5-10% – in regions such as Latin America, the Middle East and Asia.
These partnerships enable the bourses to broaden their reach in lucrative markets without having to put up large amounts of capital to acquire entire businesses or set up their own ventures.
Regulatory barriers in some areas have made launching a new exchange challenging for European and US venues, leading them to come up with other ways of breaking into those regions.


CME Group relocates backup data center to New York
Tom Polansek – Reuters
CME Group Inc, the world’s largest futures exchange operator, said on Monday it moved its primary backup data center to New York from Chicago last month to make its backup facilities more secure and reliable.


VIX Portfolio Hedging (VXH) Strategy 2013 Performance Review
The Options Insider
In 2013, being maximally long stocks was the only game in town, and investors who sought the safety of hedging strategies lagged unhedged indexes. As we noted before, 2013 was a difficult year for call writers, collar buyers, and any other investors who gave up some upside return potential in exchange for a little protection. It was an unusual year.

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