JLN Options: VIX Hits (another) Post Financial Crisis Low; Pimco’s Gross Wagering on Low Volatility in ‘New Neutral’; When Low Volatility Becomes Too Low

Jun 19, 2014

Lead Stories

VIX Hits (another) Post Financial Crisis Low
Russell Rhoads – CBOE Options Hub
VIX hit a post financial crisis low (again)  [yesterday] and just for the heck of it I decided to look at the stock market the last time VIX was at 10.61 or lower. That date was February 23, 2007 when the S&P 500 closed at 1451.19 and VIX closed at 10.58. A year later the S&P 500 had lost 6.75% and VIX had worked up to 24.06. This is when we were at the beginning of the financial crisis. By November 20, 2008 VIX had worked all the way up 80.86 and the S&P 500 was 48% lower. The VIX part of all this is highlighted below –

Pimco’s Gross Wagering on Low Volatility in ‘New Neutral’
Mary Childs – BloombergBusinessweek
Bill Gross said Pacific Investment Management Co., manager of the world’s biggest bond fund, has been betting that volatility across asset classes will remain very low, as gauges of price swings fall to their lowest levels on record.
“We sell insurance, basically, against price movements,” Gross, chief investment officer of Pimco, said in an interview today in Chicago at Morningstar Inc.’s Investment Conference. “At Pimco, that’s what we’ve tried in the last four or five weeks.”

When Low Volatility Becomes Too Low
Steven Russolillo – The Wall Street Journal
When it comes to volatility in financial markets, at some point low becomes too low.
The CBOE VIX Volatility Index–otherwise known as the stock market’s fear gauge–dropped 12% Wednesday to 10.61 after Federal Reserve Chairwoman Janet Yellen offered an upbeat economic outlook. Only 11 times in the past 10 years has the VIX been lower than it is now, according to FactSet, with the last time coming in February 2007.

Yellen Crushes Volatility With ‘Noisy’ Comment
Sam Ro – Business Insider
During her post-FOMC meeting press conference on Wednesday, Fed Chair Janet Yellen characterized the recent inflation data as “noisy.”
Morgan Stanley’s Matthew Hornbach said that response was the “biggest surprise of the FOMC press conference.”
Hornbach attributed “the lion’s share of the market reaction” to her characterization.

Videocast: Volatility beaten down

Is VIX Turning Bearish?
Clif Droke – Investing.com
The FOMC issued guidance at its Wednesday policy meeting to the effect that interest rates would remain low into the foreseeable future. It further lowered the pace of its monthly asset purchases by $10 billion to $35 billion per month. The Fed also said it expects the unemployment rate to range between 6.0% and 6.1% for the rest of the year, which is slightly lower than its previous projection.

Will This Summer Bring Us a Single-Digit VIX?
Crunching the numbers to determine recent VIX seasonality
Adam Warner – Schaeffer’s Investment Research
If volatility looks ugly now, just wait! We have regular expiration coming up tomorrow, followed by two weeks of likely snoozing into the long July 4th weekend.
Single-digit CBOE Volatility Index (VIX), anyone?
Probably not.


Euronext Detaches From ICE Through $1.2 Billion IPO
Ruth David and Francesca Cinelli – Bloomberg
Euronext NV, the European stock exchange operator with roots in the 17th century, was untethered from Intercontinental Exchange Inc. (ICE) through an 845 million euro ($1.2 billion) initial public offering.
Shares of Euronext, owner of markets in Belgium, France, the Netherlands and Portugal, were sold for 20 euros apiece, according to a statement today. The offering of 42.2 million shares, excluding stock allocated to the underwriters, was at the low end of the announced range of 19 euros to 25 euros. The stock starts trading tomorrow in Paris, Amsterdam and Brussels under the “ENX” symbol.

Europe’s biggest stock-exchange group becomes independent
The Economist
Euronext is continental Europe’s biggest exchange in terms of the capitalisation of the firms listed on it. As The Economist went to press its initial public offering (IPO) was oversubscribed; its listing is scheduled for June 20th. The sale was backed by market users and partners such as LCH.Clearnet, a clearing house, which agreed beforehand to buy and hold a third of the shares.

Regulation and Enforcement

Exclusive – FX chatrooms show traders shared order, price details: sources
Jamie McGeever – Reuters
British investigators are examining millions of electronic messages which include fresh evidence of possible collusion by a small group of top currency traders, sources say.
The investigators have been handed chatroom transcripts showing senior dealers at the big banks that dominate the largely unregulated foreign exchange market routinely sharing intelligence on orders they were about to place for clients.

Hedge-Fund Hackers Disrupting Trades for Profits, BAE Says
Chris Strohm – Bloomberg
Hackers disrupted high-speed trading at a large hedge fund and rerouted data that might be used to make money in rogue stock-market transactions, a security official with BAE Systems Plc (BA/) said.
The attack was going on for eight weeks and BAE was called in by the fund at the end of 2013, said Paul Henninger, global product director for BAE Systems Applied Intelligence. He said it had “all the signatures of an organized crime attack.”

Regulators edge towards opt-in fix for OTC stays issue
Lukas Becker – Risk.net
Counterparties will likely select a resolution regime in Isda documentation, but it remains unclear how buy-side firms will be persuaded to give up their termination rights.
Regulators looking for a way to avoid mass close-out of over-the-counter derivatives contracts in the event of a big bank defaulting – a phenomenon that could undermine attempts to resolve the institution – are said to be edging towards the so-called opt-in approach, in which the counterparties to a trade would choose to follow resolution rules laid out in a particular jurisdiction. Those rules would postpone – or stay – the ability to close out the trade.


Nasdaq says making progress on system that led to August outage
John McCrank – Reuters
OMX Group has made changes to the system that caused a three-hour trading halt in Nasdaq-listed stocks last summer, to make it more robust and to limit possible future outages to 10 minutes, a company executive said on Wednesday.
The exchange operator now hopes to continue running the system, called a Securities Information Processor (SIP), reversing direction from November when it said the risks of doing so would outweigh the rewards, said Brian Hyndman, Nasdaq’s head of global information services.

Options Completes US Equity Network And Colocation Build-out With Expansion Into NYSE Euronext’s Facility in Mahwah
Press Release (Options-IT)
Options, the leading private financial cloud provider for the global capital markets industry, today announced that it has completed the expansion of its hosting platform into the NYSE, NYSE MKT, Arca, Arca Options and Amex Options exchange colocation facility in Mahwah. This latest expansion will allow Options customers the unique ability to leverage exchange colocation services, using a single provider, for every lit and dark equity and options market in the United States.


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