JLN Options: VIX 21% Tumble Means Shorts on Volatility Double Money: Options; Gold is so yesterday, the VIX is the new safe haven

Oct 17, 2013

Commentary and Insight

 Tom Regazzi

Single Minded: Tom Regazzi of UBS Finds a Niche with Single Stock Futures

Single stock futures in the United States were launched in 2001, but are often forgotten since their big splash introduction twelve years ago.

Quietly, however, single stock futures have been growing nicely at OneChicago, the sole marketplace for the instrument. Through the first nine months of 2013, its volumes are up 49 percent, with 6.96 million contracts traded, topping total volumes posted in all of 2012.

This market has also caught the eye of UBS and Tom Regazzi, managing director at the firm’s Global Synthetic Equity department. He spoke with JLN editor-in-chief Jim Kharouf about how UBS uses single stock futures and the potential for the product going forward.

Watch the video »

Lead Stories

VIX 21% Tumble Means Shorts on Volatility Double Money: Options
Nikolaj Gammeltoft and Alex Barinka – Bloomberg
The biggest single-day decline in U.S. equity volatility since 2011 enriched options traders who spent the month doubling down on bets the bull market in stocks would survive the default deadline.

Investors Cheer Deal to End Shutdown but Worry About Reruns
Nathaniel Popper – Dealbook
While investors were cheered on Wednesday by a last-minute agreement to raise the nation’s borrowing limit and end the government shutdown, their relief was tempered by the knowledge that the deal was far from a permanent solution. And they were tabulating what the long-term costs of the political turmoil could be.
** Throw the bums out!  (Unfortunately everyone likes *their* bum and think it is all the others that are the problem.) -JB

FOCUS: Chinese Rating Agency Decision Lifts Gold Market, But Impact Debated
(Kitco News) – News that a Chinese rating agency downgraded U.S. debt pushed gold prices higher during the late Asian to early European trading sessions, some market watchers said, taking values to their session highs…

Videocast: VIX plunges on deal

Does Excess Fear Equal Trading Opportunity?
Adam Warner – Schaeffer’s Investment Research
I’m firmly in the “VIX as Contra-Indicator” camp, so I couldn’t help but notice this tweet from Jason Goepfert on Tuesday.
– Irrational fear? This is the 6th-smallest decline in $SPX for a 15% jump in the $VIX. The other 5 led to rallies.
Remember Tuesday? It seems like forever ago.

Gold is so yesterday, the VIX is the new safe haven
Katie Holliday – CNBC
With gold’s safe-haven status eroding, analysts say volatility indexes like the VIX are becoming the preferred method for hedging risk.
As a traditional safe-have asset, gold typically rallies during periods of heightened economic risk, but in recent years gold’s behavior has befuddled many analysts. Over the course of the over two-week U.S. government shutdown, for example, gold has fallen 3.35 percent.


LCH.Clearnet SA and NYSE Euronext enter into long-term agreement for clearing of continental derivatives
Press Release (NYSE)
LCH.Clearnet SA, the Paris-based clearing house of LCH.Clearnet Group Ltd, and NYSE Euronext today announced they have signed a new five-year contract for LCH.Clearnet SA to clear NYSE Euronext’s continental listed derivatives until December 2018. It replaces the current clearing services terms and contract, which were due to expire on 31 March 2014.

CME Removes Temporary Increase in Margin for Interest-Rate Swaps
Nick Baker – Bloomberg
CME Group Inc. (CME), which planned to increase margin levels by 12 percent for the interest-rate swaps that its clearinghouse guarantees, reversed the decision after lawmakers reached an agreement avoiding a U.S. default.

ASX Launching A-VIX Futures Trading Next Week
Russell Rhoads – CBOE
Back in early June of this year I had the honor and privilege of visiting the Australian Securities Exchange (ASX) and discussing volatility indexes with a wide variety of market participants.  I met with traders and investors in both Sydney and Melbourne over the course of a week.  That trip helped lay the ground for introduction of futures trading on the S&P/ASX 200 VIX (A-VIX) Index.  The countdown to launching volatility trading at the ASX is underway and next Monday October 21st will be the first day of trading for A-VIX futures.

Regulation and Enforcement

SEC Targets Broker-Dealer Registration
The Securities and Exchange Commission’s crackdown on insider trading has been a high-profile campaign that has included some high-profile hedge fund industry targets, but the market watchdog is also keeping a close eye on another aspect of private fund activity—transactions that may require the adviser to register as a broker-dealer.

Jury Rules for Mark Cuban in Setback for S.E.C.
Ben Protess and Lauren D’Avolio – Dealbook
The government mocked Mark Cuban as a winner in “his mind,” claiming that the billionaire owner of the Dallas Mavericks basketball team possessed a “competitive edge” that drove him to insider trading.
But a jury cleared him of wrongdoing on Wednesday, making Mr. Cuban a winner in the civil case and delivering a blow to the federal agency that he battled tooth and nail for five years.
**A five year long case, two weeks at trial and the jury returned a verdict in 4 hours. All to avoid a $2 million fine.  I wonder how much it cost the government to pursue the case?  I wonder how much Mr. Cuban paid his attorneys? -JB

JPMorgan to pay $100 million to CFTC over trading losses
Danielle Douglas – The Washington Post
JPMorgan Chase agreed to pay $100 million in fines and admit that its traders in London acted recklessly in placing bets on derivatives that resulted in $6.2 billion in losses, the Commodity Futures Trading Commission said Wednesday.

SEC: Knight Capital Missed Warnings Before Errant Trades
Jacob Bunge – The Wall Street Journal
Knight Capital Group Inc. KCG 0.00% overlooked multiple red flags before it mistakenly sent millions of orders to buy and sell stocks last year, according to regulators, who charged the firm with multiple rule violations Wednesday and handed down a $12 million penalty.


Watch Out: This VIX Fund Offers Threefold (or More) Leverage on the S&P
Brendan Conway – Barron’s
The remarkable finding over at Ned Davis Research this week is that the ETF offering investors the greatest leverage to stocks doesn’t have a “huge leverage on stocks” label at all.

Trading the end of the shutdown
James Ramelli – Traders Magazine
Last night the U.S. House of Representatives reached an agreement to reopen the partially shut down Federal Government and in turn averted a debt ceiling disaster. Now that the debate is over, is it time to buy the market? It’s important to consider the terms of the agreement in Washington and what catalyst we have on the horizon. The deal to avert hitting the debt ceiling was anything but comprehensive.

Despite Debt Deal Slowdown Looms
Jack Hough – Barron’s
U.S. stocks are having a surprisingly bright October.
So far, the month has brought a 16-day partial shutdown of the federal government and a near-default on the national debt, both of which were resolved after the Senate on Wednesday reached an 11th hour deal. Yet the Standard & Poor’s 500 index is no worse for the drama, up 2% for the month.

Options Education

Yin and Yang of Options – Part 2
Russ Allen – The Options Insider
Last time, I wrote a back-to-basics article about the nature of options. I noted that the causes of the change in the value of an option include: changes in price of the underlying asset, the passage of time, and changes in market expectations of volatility. Today we’ll expand on that.


Options Trading for Women: Tips, Tactics & Techniques to Get You Started
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Who Should Attend:  Beginner Women Investors
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