JLN Options: VIX Retreats As Bullish Sentiment Returns; With Absence of Glitches, Confidence Rising in Market’s Structure; This Triple-Digit ETF Winner Will Burn You

Aug 14, 2014

Lead Stories

VIX Retreats As Bullish Sentiment Returns
Anna Coulling – Investing.com
The question that every trader and investor is asking at present, and continues to ask on a daily basis, is whether this is the start of the big short, or merely a long awaited market correction in equities, and the answer as always is partly answered by the VIX, the barometer of fear. The recent sharp move lower in early August for equities, which many investors and analysts suggested was the start of a major reversal, only saw the VIX hit a daily high of 17.60, a number which is hardly suggestive of panic selling.

With Absence of Glitches, Confidence Rising in Market’s Structure
Scott Patterson – WSJ
The lack of a major market snafu this summer—so far—appears to have given a shot in the arm to confidence in the plumbing of the U.S. stock market, a new survey shows.
A Tabb Group survey of market players and watchers, including the media, released Thursday found that 56% of respondents have “high” or “very high” confidence in the structure of the market—the computerized, laser-driven nuts and bolts that make it go—a big leap from 30% in April 2013 and 34% in August 2012.

This Triple-Digit ETF Winner Will Burn You
By Brendan Conway, Barron’s
If volatility ETFs are near-certain losers in the long run, what about ETFs built to take the opposite bet?
Dave Nadig of ETF.com explores these in a writeup today. His conclusion: Don’t be fooled by the strong recent returns. He wouldn’t try his hand, and he argues most other investors shouldn’t, either.
Nadig’s referring to VelocityShares Inverse VIX Short Term ETN (XIV), which is linked to the same index driving iPath S&P 500 VIX Short Term Futures ETN (VXX). XIV has surged 288% in its lifetime. VXX, meanwhile, is down 99.5% during its own. The trouble is that market volatility tends to chew up buy-and-hold investment returns in this exchange-traded note.

Goldman Sachs Expects New High for Estee Lauder
The investment bank predicts the stock will rise 15% over the next year; options investors could earn 50%.
Steven M. Sears, Barron’s
Estee Lauder’s stock has barely moved this year, but options investors are preparing for the stock to rally to a new high.
For the past several days, Estee Lauder’s (ticker: EL ) bullish calls have been unusually active ahead of Friday’s fourth-quarter earnings report. Investors are buying calls in anticipation the cosmetics giant rallies on earnings. The company is expected to report earnings of 56 cents a share on revenue of $2.66 billion.

The Volatility Cycle Strikes Again
By Chad Karnes, Seeking Alpha
The cyclical two-month pop in stock market volatility (VIX) came early this month. Volatility’s latest spike took VIX levels up over 30% from its July lows in a hurry.
Volatility has made a habit of spiking higher about every two months, for whatever reason. The cause for the volatility spike and subsequent market decline has typically been varied, whether war, economic data, or Reserve Bank musings, but it seems to always result in a similar outcome; a quick spike higher in the VIX that savvy investors can take advantage of.

Six Years After Lehman Went Bust Derivatives Still a Threat
Robert Lezner – Forbes
Almost six years after Lehman Brothers went bankrupt, the contingency plans of 11 major financial institutions to close up shop in an orderly process of resolution, without repeating the Lehman disaster, have been utterly rejected as unrealistic, incomplete nonsense by the regulators of Wall Street. Quite frankly, I can only blame “willful blindness” for the unwillingness of the 2008 survivors to make public a plan for their own dismemberment or even raise a legitimate scenario for their demise in another crisis.

Regulation and Enforcement

Surprisingly good start for European derivatives reporting mandates
Jon Watkins – The Trade
The start of collateral and valuations reporting under the European market infrastructure regulation (EMIR) has been smoother than OTC and listed derivatives transaction reporting requirements introduced in February, according to industry experts.
From 11 August, both buy- and sell-side firms in Europe had to begin reporting the collateral they post for derivatives trades along with the valuations of transactions, in addition to the 85 fields already required by regulators.

Once Powerful, Mary Jo White’s S.E.C. Is Seen as Sluggish and Ineffective
Jesse Eisinger – NY Times
Mary Jo White took the helm of the Securities and Exchange Commission facing high hopes that she could turn around the once-proud agency. More than a year into her tenure, she has disappointed a wide swath of would-be allies.
Over the last several weeks, I’ve been talking to fellow regulators, administration officials, current and former S.E.C. staff members, financial reform advocates and people on Capitol Hill whose opinions of Ms. White’s performance range from dissatisfied to infuriated.


TMX Atrium to Provide Microwave Connectivity Network Solution for North American Market
TMX Group to acquire the microwave business of Strike Technologies Services
Press Release
TMX Atrium, TMX Group’s global marketplace infrastructure provider, today announced that it will be launching a new cross-border marketplace connectivity network that uses industry best-practice microwave technology. The microwave network services will be available to all market participants.


Finding the Smart Money in VIX Futures
How you could’ve timed the CBOE Volatility Index (VIX) just right — and still botched a trade
by Adam Warner 8/14/2014 8:03 AM
We haven’t looked at CBOE Volatility Index (VIX) futures much lately — maybe thanks to the fact that VIX itself has moved around a bit more than normal. But alas, all good things must come to an end. We’re back with a 13 full, which is pretty much the new normal, or at least the normal of this low-volatility regime we sit in.

The Return Of Volatility Suggests Investors May Want To Start Getting Defensive
Elena Holodny, Business Insider Wealth Advisor
The Recent Market Volatility Is A Reminder To Look At Defensive Funds (Morningstar)
In the last few years, risky choices have certainly paid off. But the recent market volatility — the Vix is up 10% over the past 30 days — is a wake-up call that sometimes risk-taking “may not be so well rewarded”, according to Christine Benz. Following the news of geopolitical turmoil, not-cheap equity valuations, and the prospect of rising interests, it’s time to start looking at more defensive funds.

Options Education

Generate Robust Returns With Volatility Options (UVXY)
This bull put spread will profit when volatility rears its ugly head again
By David Becker, InvestorPlace Contributor  
Volatility has remained surprisingly subdued despite increasing sanctions by the U.S. and European Union on Russia, and escalating violence in Gaza.
Although speculating on higher implied volatility has been a difficult proposition this year, one way you can generate strong returns is by using options — in this case, a strategy called a bull put spread — on an exchange-traded fund, or ETF, that tracks implied volatility.

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