Observations & Insight
by Doug Ashburn, John Lothian News
Regular readers of JLN Options know that options editor and company CIO Jeff Bergstrom has fled the country and crossed the pond for a few days in London and Paris. In his absence, duties will float around the company. Today you get me.
In volatility news, the VIX actually rose on a rally yesterday, but then rose even more on today’s break. Sometimes it’s not a gauge of fear, but rather one of actual or expected price action. In fact, I argue below that the “fear vs. greed” debate is a misnomer, and that what looks like greed is just a different type of fear.
If you have not seen part one of our interview with ISE’s Gary Katz, today is the last day it will be featured in the newsletter. Starting tomorrow we will run part two. Of course, all of our video and commentary can be found on our new news site, JohnLothianNews.com.
Spoiler alert: to prove we do not play favorites here, next week we will also feature an interview with CBOE’s Ed Tilly.
VIX Climbs with Stocks on Tuesday
Wall St. Sector Selector
The Chicago Board Options Exchange Volatility Index (VIX) advanced 1.29 percent on Tuesday as the S&P 500 climbed 0.57 percent – to another record-high close, surprising many investors. Most investors assume that the VIX is limited to downside volatility and that it is always a bearish signal. This is wrong. The VIX indicates the expected movement of the S&P 500 over the next 30 days, expressed on an annualized basis in percentage points.
***DA: Volatility is not always inversely related to direction. But the VIX was up even more on today’s down move.
Hedge funds hunger for lost oil volatility
Clive Capital has thrown in the towel. Deep into its third year of losses, what was once one of the world’s largest commodity hedge funds shut down late last month. The closure is symptomatic of a broader trend – or more accurately, the lack of one. Hedge funds once feasted on wild action in oil. Now, volatility has fallen to historic lows. Plodding prices have forced traders to experiment with new ways to make money.
***DA: As long as the central bankers are in the drivers’ seats, those betting on chaos will be on the wrong side of the trade.
Has the Market Gotten Greedy?
The signs are everywhere. The market’s so-called fear gauge, the VIX, has dropped like a rock since Congress reopened a partially shutdown government last week and kicked the can on the debt ceiling. Shares of JPMorgan Chase (ticker: JPM) have been holding up even in the midst of talk of a record $13 billion fine related to financial-crisis-era wrongdoing and the possibility of criminal charges arising from the case. The broader stock market even shot up this morning to an all-time high after another lukewarm monthly jobs report.
***DA: It’s not “fear vs. greed.” I think it is still fear – fear that with negative real interest rates, one cannot afford to hold cash. Pile in to anything else – stocks, real estate, Beanie Babies – anything but cash.
Deutsche Bank Autobahn launches electronic options trading platform
Deutsche Bank’s Autobahn electronic trading business has launched Autobahn Options, offering complete US equity options trading capabilities.
Eugene Fama’s Nobel Prize: Right Person, Wrong Reason
Eugene Fama’s shared economics Nobel Prize last week surprised no one except, oh, the few who know the reality of his life’s work. The Nobel Committee cited what we know as his and Kenneth French’s “efficient-market hypothesis” in rewarding Fama one-third of the prize pie. Efficient-market theory, or EMT, is used everywhere today, but Fama and French’s own research later made it all but moot. The real contribution is the “Fama and French three-factor model.” Thanks to Stockholm, Fama will be remembered for EMT forever, and the three-factor model will rarely be cited. Such is life — but investors can do better by Fama
***DA: 80 percent of investors think they are in the top 20 percent.
ISE Gemini Surpasses 500,000 Contracts in a Trading Day
The International Securities Exchange (ISE) today announced that ISE GeminiTM surpassed two milestones for the first time by trading over 500,000 contracts (actual: 601,901 contracts) in a single day, and also accounting for over 3 percent (actual: 3.3%) of equity and ETF options market share. ISE Gemini has a total of 500 listings and plans to rollout an additional 200 names by the end of October.
NYSE Technologies’ XDP powers the HKEx OMD Platform
NYSE Technologies’ XDP powers the HKEx OMD Platform NYSE Technologies, the commercial technology division of NYSE Euronext (NYX), today announced that its Exchange Data Publisher (XDP) is the market data engine powering the new Hong Kong Exchanges and Clearing (HKEx) Orion Market Data (OMD) Platform. Selected by HKEx for its industry leading, low-latency performance, XDP enables the HKEx OMD Platform to distribute market data packaged into value-added services tailored to different subscriber groups.
Russell Adds Volatility Control Methodology to Popular Fundamental Index Series
Russell Indexes, a leading global index provider, has added a new index to the Russell Fundamental Index(R) Series. The Series, which was launched in collaboration with Research Affiliates in 2011 and has gained widespread adoption by retail and institutional investors globally, uses fundamental economic measures of company size rather than stock price in selecting and weighting index constituents.
BATS Global Markets And Direct Edge Transaction Granted Early Termination Of HSR Waiting Period
BATS Global Markets, Inc. (BATS) and Direct Edge Holdings LLC (Direct Edge) today received notification that early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has been granted with respect to the proposed merger between BATS Global Markets and Direct Edge.
NASDAQ OMX Reports Third Quarter 2013 Results
Third quarter 2013 net revenues were a record $506 million, up 23% from the prior year quarter. On an organic basis, assuming constant currency and excluding acquisitions, net revenues increased 4% year-over-year.
Regulation & Enforcement
It’s not about the regs, It’s about your business
Regulations driven by the G20, both finalised and yet-to-be, are putting pressure on all market participants in the trading lifecycle to improve their approaches to real-time risk management and pre-trade risk constraints. But really, firms should not wait for regulations to force their hands, because actively managing their approach to pre-trade risk can improve overall operational efficiency and is, ultimately good for business.
***DA: Commentary by Steve Woodyatt, chief executive and chairman of Object Trading, who looks at new rules and the challenges they face in meeting upcoming regulatory reforms.
China to launch simulated trading in stock index options in Nov – report
China will launch simulated trading in stock index options on November 8, official media reported on Wednesday, as regulators move to enhance risk hedging options to support further financial reforms.
SEC moves toward allowing crowdfunding IPOs
Up until now, crowdfunding has just been a way for consumers to give money to inventors concocting newfangled things ranging from Big Wheel bikes for grown-up and smartphones. But soon, it could become a way to actually invest in those companies.
CFTC Announces Schedule for Publication of Reports Delayed by the Government Shutdown
Commodity Futures Trading Commission
The CFTC will begin issuing its weekly Commitments of Traders (COT) reports on a rolling basis as soon as they are ready – with the first report being published on October 25, 2013. The CFTC expects that the release of the Cotton-on-Call reports will be back on schedule by the November 7, 2013 release date. The Bank Participation Report originally scheduled for release on October 4, 2013 will be released on October 25, 2013.
Overall Volatility Decreases in Second Quarter
Genpact Limited, a global company that transforms and runs business processes and operations, unveiled its Volatility and Adaptation Index (VAI), a first-of-its-kind framework that measures indicators of market volatility, as well as the volatility’s consequences for large global companies.
***DA: First of its kind volatility indicator? Seems like I have seen one of these before.
Videocast: Big call spread in VIX
Options Strategies For A Broken Stock Trade
Sometimes bad things happen to good stocks. And when this happens, good stock trades can quickly become broken stock trades. Just like a rising tide lifts all boats, when the tide goes out, the boats go lower. Massive market sell-offs show no mercy, are not selective, and take no prisoners.
Types of Binary Options for Trading Strategies
Traders who are new or unseasoned to the binary options for trading need to follow option strategies that are laid down by investors and other traders who have been trading for a long time.