JLN Options: Small-Cap VIX Up 11% Echoes Fed Concern for Valuations; Is a 'fear surge' just around the corner?; Market 'Black Swan' Fear at Record High

Jul 22, 2014

Lead Stories

Small-Cap VIX Up 11% Echoes Fed Concern for Valuations
Callie Bost – BloombergBusinessweek
Options traders are showing signs they agree with the Federal Reserve about small-cap stocks.
The Chicago Board Options Exchange’s Russell 2000 Volatility Index is up almost 11 percent this year, compared with a 6.6 percent drop in the VIX, which tracks the cost of protecting against losses in the Standard & Poor’s 500 Index. The small-cap measure last week reached the highest level since 2006 relative to the gauge known as the VIX, data compiled by Bloomberg show.

Is a ‘fear surge’ just around the corner?
Lawrence Lewitinn – Yahoo Finance
So much for the “fear trade.”
The CBOE Volatility Index (VIX), often referred to as “the Fear Index,” had its biggest one day move in over a year as tension around the world mounted at warp speed. But a strange thing happened on the way to Armageddon. Everyone took a deep breath, and stocks rallied.

Market ‘Black Swan’ Fear at Record High
Anthony Mirhaydari – The Fiscal Times
After last Thursday’s volatility surge, driven by the horrific missile strike against Malaysia Airlines flight MH17 and fresh violence between Israel and the Palestinians, the stock market has calmed down. Large cap issues in particularly seem largely unfazed by all this, with the Dow Jones Industrial Average not suffering a meaningful close below its 20-day moving average since April.

Why the Markets Are Ignoring Ukraine and Gaza
Adam Johnson – Bloomberg
One key question bothers us: Why are global markets so unmoved by dozens dying tragically every day in Gaza and Ukraine?
The MSCI World Index still hovers within 1.4 percent of its all-time high on July 3, and the Dow Jones Industrial Average (INDU) is just 90 points from its respective high established last Wednesday.
Even so-called risk assets show few signs of concern. Oil and gas have actually declined in July, and the Chicago Board Options Exchange Volatility Index (VIX) is still near seven-year lows.


Sponsored Content

Derivatives World China: The International Options Forum

16 September, Shangri-La, Dalian, China

With options set for launch in China this year, now is the time to find out how you can take advantage of this once in a lifetime opportunity to be there at the start of the market.

Join over 300 key figures from the global futures and options markets for high level discussions on the latest developments, opportunities, challenges and future direction of the options market in China and around the world.

To view the agenda, click HERE

To register for the event, click HERE


VQT: The Answer to Your Market Fears?

Adam Warner – Schaeffer’s Investment Research
Whatever your opinion now, we can probably all agree that risk has increased.
So, what to do? Brendan Conway takes up the topic in Barron’s (subscription required), and reminds me of an interesting ETF.

Videocast: Betting on lower volatility

Bill Ackman’s Big Herbalife Reveal Bombs With Investors
Hedge fund billionaire William Ackman promised to deliver a deathblow to Herbalife from a Manhattan stage, but his long presentation on Tuesday bombed with investors and left the diet shake seller unscathed…
…The company, which has vigorously denied Ackman’s accusations, said on Tuesday that Ackman was trying to drive down Herbalife’s shares over a relatively short period because a “substantial portion of the bet expires on January 17, 2015,” referring to put options Ackman purchased last year when he restructured his short position in the company’s shares. Circumstantial evidence suggests Ackman’s put options are currently not in the money.


Bats President Who Rebuked Michael Lewis Leaves Exchange
Bill O’Brien, the former Goldman Sachs Group Inc. executive who built Direct Edge Holdings LLC into one of the biggest U.S. stock exchanges, is leaving the firm after merging it with Bats Global Markets Inc.
Joe Ratterman, the chief executive officer of Bats, will assume O’Brien’s role as president, according to a statement. The departure is effective immediately.

Regulation and Enforcement

Commissioner O’Malia to leave U.S. CFTC swaps watchdog
Douwe Miedema – Reuters
Commissioner Scott O’Malia said on Monday he intends to leave the U.S. Commodity Futures Trading Commission, creating a vacancy just a short while after Chairman Tim Massad took over at the derivatives regulator.
O’Malia, a Republican, said he intended to resign as of Aug. 8, 2014, after roughly 4.5 years as a member of the five-strong commission. He did not disclose his future plans.

5 Ways Dodd-Frank Is Reshaping Wall Street
Victoria McGrane – WSJ
Four years after the Dodd-Frank law on financial regulation was signed, Wall Street’s big banks have reshaped themselves in fundamental ways. Banks are cutting some businesses, while bulking up defenses to help weather future crises. Here’s what five big Wall Street banks have done.

Senate Literary Critics Don’t Like Fictional Derivatives
Matt Levine – Bloomberg
Today, the Senate’s Permanent Subcommittee on Investigations is holding hearings about how some hedge funds, led by Renaissance Technologies, and with the assistance of some banks like Barclays and Deutsche Bank, may have evaded some $6 billion in taxes by using basket options. Fine. But the first thing to do about Renaissance Technologies’ use of basket options to reduce taxes is to admire it aesthetically. It is so simple, yet so lovely.


Volatility Tension
Andrew Giovinazzi – The Options Insider
With 4.5 weeks to go in the VIX Aug cycle, there is not a lot of enthusiasm for the August VIX futures.   Is cash too high, or are futures too low, or is it just a combination of both?  There was an average mark up in VIX due to the weekend but not much more than that.  Stocks sold off but really did not have a lot of gas to keep going down.


John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Pin It on Pinterest

Share This Story