Temperatures Gain in German Stocks, Hedging Costs Rise
Callie Bost, Bloomberg
The stimulus trade in German equities is crumbling and investors are bracing for the fallout to worsen.
The attached chart shows the cost to hedge against declines in the DAX Index is the highest since at least 2006 relative to the Standard & Poor’s 500 Index, according to three-month Bloomberg data on implied volatility.
**JK – So who is tired of the Greece story? Everyone? I thought so.
Australian blue chips tank as options unwind
Australian shares took quite a beating today, and one that is completely out of kilter with the rest of the region.
The S&P/ASX 200 closed 1.33 per cent lower at 5659.2, compared to a 0.8 per cent gain for the Nikkei , a 0.3 per cent decline for the Shanghai Composite and a 1.1 per cent fall for the Hang Seng.
Is the big drop something to do with BHP Billiton and its South32 spin-off? No. The more likely explanation is that a lot of options have been unwound in the wake of BBY, a local stockbroker, going into voluntary administration on Monday after failing to secure a financial lifeline over the weekend from strategic investors.
**JK – BBY said it is Australia’s largest independent full-service stockbroker, with over A$2 billion under management.
Brazil’s Real Falls as U.S. Rate Outlook Damps Emerging Markets
by Paula Sambo, Bloomberg
Brazil’s real dropped for a second straight day as speculation that the Federal Reserve will raise interest rates later this year damped demand for higher-yielding assets from emerging markets.
The real depreciated 0.4 percent to 3.0100 per U.S. dollar at 10:11 a.m. in Sao Paulo after falling 0.7 percent last week. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 16 major currencies tracked by Bloomberg.
Russia Dirty Float Outed by Traders as Central Bank Sells Rubles
For all Russia’s talk of a free-floating exchange rate, central bank actions are telling traders it’s still being managed.
While the Bank of Russia said its purchases of dollars last week were aimed at replenishing foreign-currency reserves, Goldman Sachs Group Inc. and Morgan Stanley see curtailing the world’s biggest currency rally as the real motive. Options show traders pared the probability of the ruble strengthening beyond 49 per dollar to 41 percent from 44 percent by the end of June after the central bank began buying dollars Wednesday.
**JK – Nothing quite like central bankers talking dirty.
Volatility is the ‘new normal’
by Jason Spits, Money Management
Funds management firms in the Asia Pacific region are taking less preventive action to deal with a possible market downturn and are seeing volatility as the ‘new normal’ according to State Street Global Advisors (SSGA).
Research conducted by SSGA found that despite the possibility of a contraction institutional investors in the Asia-Pacific region have not moved to protect portfolios against capital losses with 68 per cent making no change to their level of downside protection.
**JK – Interesting take on human behavior in the markets. I guess everyone can get used to a rocky boat at some point.
Wolverine Now Offers Options on Futures Trading
John D’Antona Jr. – Traders Magazine Online News
Wolverine Execution Services (WEX) is now offering traders the opportunity to execute options on futures contracts.
WEX, an independent broker-dealer and technology provider, now let’s traders engage in strategies using these derivatives via its WEX Trading Platform (WTP). Permissioned WTP users can view options on futures market data, enter orders, and monitor executions.
**JK – WEX on, WEX ops. (That was really, really, bad.)
Nasdaq Lists Two AccuShares Spot CBOE VIX ETFs
Nasdaq today announced that AccuShares Investment Management LLC (AccuShares) will list two new exchange-traded funds (ETFs), AccuShares Spot CBOE VIX ETF Up Class Shares (Symbol: VXUP) and Down Class Shares (Symbol: VXDN), which will begin trading on The Nasdaq Stock Market on Tuesday, May 19, 2015. The funds will track the CBOE Volatility Index (VIX).
Sebi move may spoil F&O party for retail investors
Economic Times (India)
A regulatory proposal to raise the entry bar for trading in equity derivatives could shut retail and even rich investors out of the market. The move is ostensibly aimed at preventing individuals from making themselves vulnerable to high-risk speculation but critics say any such change would make trades expensive, kill off volume and restrict the market to institutions.
The Securities and Exchange Board of India (Sebi) is considering to increase the minimum contract size for stock and index derivatives to either Rs 5 lakh or Rs 10 lakh from the existing Rs 2 lakh.
Will The Breakout To New Highs Stick This Time? – Weekly Market Outlook
By Price Headley, CBOE Options Hub
The S&P 500 Index ended last week at a new high, and the technical trend momentum picture is bullish. But we’ve seen similar moves since February reverse several times, as the market has remained in a choppy and grinding narrowing range (with a mild upside bias).
The $64,000 question: Do we trust the move we just got by taking it at face value, or is this another potential fakeout? We’ll weigh the odds below, after taking a detailed look at some of last week’s and this week’s economic numbers.
Regulation & Enforcement
Clearing houses are big risk, top U.S. federal researcher says | Reuters
Douwe Miedema – Reuters
Clearing houses, whose role to guard financial stability was much expanded after the 2007-09 crisis, now pose threats themselves, the head of the top U.S. financial research agency told Reuters on Friday.
**JK: It’s worth taking a look at our OCC videos.
Clearing Evolution: Michael McClain on the changes at OCC – http://jlne.ws/1EQdd2l, OCC Lingo: SIFMU Stands For Clearinghouse Changes – -http://jlne.ws/1yTWpIN
Spoofing Surveillance and Enforcement a Major Challenge for Regulators
Eric Hess, Hess Legal Counsel, for The TABB Group
Holding market access providers accountable for detecting spoofing by their clients will ultimately be more successful in preventing spoofing than all the new technology that the SEC and FINRA have invested in for two reasons: the lack of a customer identifier on orders and because spoofing requires proving intent. But should the intent not to trade really be the dividing line between disruptive practices or manipulation and savvy trading designed to disguise legitimate trades?
Orc Tbricks platform gains CBOE certification
By Maria Nikolova, LeapRate
Orc Tbricks trading platform now offers a certified interface to the Chicago Board Options Exchange (CBOE).
Orc Group AB (OTCMKTS:ORCYY), an international trading technology provider, has today announced that its recently launched platform Orc Tbricks is now certified to provide connectivity to the Chicago Board Options Exchange (CBOE) and the CBOE Futures Exchange (CFE), parts of CBOE Holdings, Inc (NASDAQ:CBOE).
Oil volatility fades as risks become more balanced: Kemp
By John Kemp, Reuters
Oil prices have become much less volatile in recent weeks as the record short position previously established by hedge funds has been squared up and prices return to a level at which many U.S. shale wells are profitable.
How to Profit From a Weaker Dollar – Barron’s
Steve Sears – Barron’s
Bullish options on gold and silver offer ways to profit from a weaker greenback.
Apple Inc. (AAPL) Option Buyers Take Cues from Icahn
Schaeffer’s Investment Research
Apple Inc. (NASDAQ:AAPL) shot higher in late-morning trading, after activist investor Carl Icahn said he thinks the shares are “dramatically undervalued,” and waxed optimistic on the company’s future ventures. At last check, AAPL has added 1.2% to flirt with $130.35 — helping the Dow explore record highs — and option traders are rolling the dice on more upside this week.
Last Week in VIX – 5/17/2015
Russell Rhoads, CFA, Senior Instructor, The Options Institute
There was a fairly parallel shift lower in spot VIX and VIX futures pricing as there wasn’t much to get excited about last week. The May VIX future dropped a little more than the spot index as expiration is just around the corner. Despite the almost 5% drop in the May contract, the premium relative to spot VIX is about 1.30.
A Low Volatility World
by Vito Turitto of HyperVolatility
The present mini – research is extracted from the HyperVolatility End of the Year Report 2014 and it examines how the most important American equity index performed over the last year.
Please visit www.hypervolatility.com to download the End of the Year Report 2014 for FREE (no registration needed).
The 1st part of the HyperVolatility End of the Year Report 2014 examines the performances of the most important markets in the world (equities, currencies, bonds and commodities). This year the selection of the asset classes under examination has been expanded.
January 2016 Options Now Available For iShares S&P 500 Growth Index Fund (IVW)
Investors in iShares S&P 500 Growth Index Fund (AMEX: IVW) saw new options become available today, for the January 2016 expiration. One of the key inputs that goes into the price an option buyer is willing to pay, is the time value, so with 242 days until expiration the newly available contracts represent a possible opportunity for sellers of puts or calls to achieve a higher premium than would be available for the contracts with a closer expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the IVW options chain for the new January 2016 contracts and identified one put and one call contract of particular interest.