LEAD STORIES

Vix backwardation shows fretting is short term
Jamie Chisholm – Financial Times
For all the teeth-gnashing over a possible US technical default, the S&P 500 by Wednesday’s open was down only about 4 per cent from its record high.
Most analysts agree that if investors really thought the world’s biggest economy was about to bilk on its commitments then stocks would have sold off more.
http://jlne.ws/1bcqt1w

VIXplosion
Henry Schwartz – The Street
Fear is back — big time. CBOE Volatility Index (VIX) was up .93 to 20.34 Tuesday to recapture the 20 handle for the first time in more than 3 months- spot VIX almost touched 21 as President Obama took the podium to update the public on the budget and debt ceiling crisis that is underway.
http://jlne.ws/160Ou8m
**When I gathered this story around 2:45p the VIX was down to 19.24. -JB

Debt Ceiling Volatility Has Some Distance To Go
John Nyaradi – Wall St. Cheat Sheet
The major stock indices made significant declines in excess of one percent on Tuesday, as an increasing number of investors decided to sell their stocks, rather than wait-out the standoff in Washington. The Chicago Board Options Exchange Volatility Index (VIX) jumped 4.79 percent to 20.34 — its highest closing level since June 20.
http://jlne.ws/160PFVa

Obama to Pick Yellen as Leader of Fed, Officials Say
Jackie Calmes – The New York Times
President Obama will nominate Janet L. Yellen as chairwoman of the Federal Reserve on Wednesday, White House officials said Tuesday night, ending an unusually prolonged and public search to fill one of the most important economic policy-making jobs in the world.
http://jlne.ws/GNBnSg
**Prolonged indeed.  Sometimes I do not understand the political calculus of these sorts of things.  Not like this choice is a surprise to anyone at this point (particularly after Summers opted out). -JB

Giant Put Trade in VXX
The Options Insider
Today paper bought the VXX Nov 13 and 14 puts and sold the 15 and 16 puts 101,887 by 80,023 and 67,925 by 84,906. The ADV is 323,000 contracts.  The OI is 51,751, 30,465, 33,442 and 23,342 contracts.
http://jlne.ws/GNDEga
**In yesterday’s newsletter I included an article where someone was opining that the VXX was the “worst investment in the world”.  Apparently someone doesn’t agree with that. -JB

Videocast: VIX futures catch up
optionMONSTER
http://jlne.ws/160Q7Tq

Citi: VIX Is Not Well Understood  
Michael Ide – ValueWalk
The VIX is meant to measure volatility in the S&P 500 (INDEXSP:.INX), and with domestic political risk a lot higher than most people imagined would be possible, it’s being tossed around as a sign that investors are nervous about the future. But there are other, arguably better, measures of volatility that don’t show the same apprehension and are being ignored by pundits.
http://jlne.ws/160QIVc

In Gold’s Strange 2013, No Help From Stock Volatility
Brendan Conway – Barron’s
In recent years, an unsteady stock market was a help — sometimes a very big help — to the price of gold.
Not during 2013. Investors’ biggest fear these days is missing sharp stock-market gains. Especially, as has been the case this year, if gold’s price is left behind.
http://jlne.ws/19hWnZo

Companies warm up to hedging after volatile currency takes toll [India]
Joel Rebello – LiveMint
Hit by the recent volatility in the rupee, many small- and mid-size companies in India are rushing to hedge their foreign currency risk…
“They have become more open to forwards and options to hedge their forex exposures now when the rupee is back to 61 level,” Narayanan said. “These companies are approaching us to see how they can avoid big losses.”
http://jlne.ws/160Q222 

Commodity Prices Wrong as Often as 27% of Time for Traders
Lananh Nguyen & Isaac Arnsdorf – Bloomberg
Commodities traders who buy and sell as much as $5.67 trillion of raw materials a year say the benchmark prices for everything from oil to iron ore to gasoline are wrong as often as 27 percent of the time.
http://jlne.ws/1gpUWgq
**One of the prime purposes of these markets is as a price discovery mechanism.  If that cannot be trusted… -JB

EXCHANGES

CBOE’s VIX Options Establish New Single-Day Volume Record: Nearly 1.8 Million Contracts Change Hands
Press Release (CBOE)
Chicago Board Options Exchange (CBOE) today reported that options on the CBOE Volatility Index (VIX index) established an all-time, single-day volume record. Options volume totaled an estimated 1,782,329 contracts, surpassing the previous record of 1,399,867, contracts traded on April 15, 2013.
Year to date through September, VIX options average daily volume (ADV) was 565,040 contracts, a 32-percent increase over the same period a year ago. VIX futures ADV year to date through September was nearly 160,000 contracts, an 86-percent increase over the same period a year ago.
http://jlne.ws/1gpRFhc

NYSE Euronext Announces Trading Volumes for September 2013 
Press Release (NYSE)
NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for September 20131. Global derivatives average daily volume (“ADV”) of 6.5 million contracts, excluding Bclear in September 2013 decreased 7.5% compared to September 2012, but increased 12.7% from August 2013. U.S. equity options volumes in September 2013 decreased 11.7% compared to September 2012, but increased 8.8% sequentially. ADV in U.S. cash equities declined 9.3% year-over-year, but increased 13.1% month-over-month. European cash equities ADV in September 2013 decreased 5.8% compared to September 2012, but increased 4.8% from August 2013 levels.
http://jlne.ws/160Notd

CME’s Duffy says exchange is braced for turbulence
Sital S. Patel – MarketWatch
The head of the CME Group said his firm has survived by focusing on risk management —and that the biggest futures exchange is ready for the turbulence that would come in the Treasury futures market if the debt ceiling is not raised in time.
http://jlne.ws/160RRMs

REGULATION

U.S. swaps markets go unpoliced in shutdown, regulator warns
Douwe Miedema – Reuters
Hundreds of trillions of dollars worth of derivatives are changing hands unsupervised during the U.S. government shutdown, raising the risk that doubtful activity goes by unnoticed, a top regulator warned.
http://jlne.ws/GNCUYz
**Unless someone thinks these agencies will never re-open it’d be dangerous to hope some shady deals would go unnoticed. -JB

OPTIONS EDUCATION

Video: Dan Collins Insight on Diversifying Options Strategies
Dan Collins – Dan Collins Report
Dan Collins sits down with Traders Exclusive to discuss how options strategies are becoming more diversified to solve for volatility and drawdowns. Of the 107 options specific managers, ninety to ninety percent use a premium collections strategy with only thirty eight percent positivity. However, the top ten preforming managers have adjusted their strategy to incorporate a much more diversified approach buy buying and selling options across several different assets.
http://jlne.ws/160Rjq0

Options: Lowering The Cost of Insurance 
Jim Bittman – CBOE (via Investor’s Business Daily)
Let’s face it; we want the best of both worlds. We want upside potential on our stocks and no downside risk. The hard part is finding a strategy that targets this combination. Fortunately, options give us more than one alternative.
http://jlne.ws/160LybT

STRATEGY

Government Default Fear Hits Market  
Steven M. Sears – Barron’s
Conventional wisdom is that Congress won’t let the nation default, but here’s how traders are protecting themselves in case “extreme idiocy” prevails.
http://jlne.ws/15ohrOu

How to Invest for a Government Default
Steven M. Sears – Barron’s
More money is chasing options that will pay off big if fear of default causes the market to plummet. Here’s how to buy portfolio insurance against Congress.
http://jlne.ws/1ab46ak

EVENTS

The Future of Options Trading Event on November 5: Finding Edge Outside the Pit
The Options Insider
At this Options Alliance event on November, our panelists will discuss many of the environmental changes that have taken place over the last few years in our business. This includes the evolution away from pit-based markets; new opportunities that have been created by entrepreneurs in the options industry; legal and technological hurdles to overcome; and how to market and promote your new business venture.
$25.00
http://jlne.ws/GNCO38

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