JLN Options: Volume in the Volatility Market Absolutely Exploded During Tuesday’s Rout; Why Market Volatility Is Driven by the Credit Cycle; Is Higher Volatility With Us for a While?

Sep 14, 2016

Observations & Insight

Market Microcosms
Spencer Doar – JLN

The Chicago Cubs will be in the playoffs this year. That is pretty much a given as their magic number is only three. (Note: I am a pragmatic White Sox fan.)

In light of this reality, one rooftop provider of seats with a view of Wrigley is selling options on postseason tickets. The idea is to bring back a platform called OptionIt which was used by a ticket company, SmartOptions, that went belly-up in 2013. The option reserves the right to buy the tickets at face value (and thus removes having to deal with ticket resellers). The platform was developed by former CBOTers in the late 90s. I really hope this catches back on, especially for big events (any of the bowl games, the World Cup and March Madness are examples) where the teams are not known far ahead of time.

This comes on the heels of more ticket broker news from a Senate panel on resellers. You guessed it, the Broadway hit “Hamilton” is a focus.

From my colleague Doug Ashburn: If you follow this space, you know full well how much we love the musical “Hamilton.” In fact, John wrote a column a while back, Hamilton the Musical is a Market Obsession. In the column, John draws a number of parallels between the market for Hamilton tickets and our financial markets. If you have not done so, take a look, as it covers everything from the price discovery process to counterparty risk, term structure, arbitrage, IPOs and optionality. Why is this important today? Two days ago, the U.S. House passed H.R. 5104, which makes it illegal to use ticket-buying “bots” to get around bulk purchase rules.

The stories referenced above can be found below.


Wrigley Field rooftop selling options on playoff tickets
Danny Ecker – Crain’s Chicago Business
One of the last remaining Wrigley Field rooftop businesses not owned by the Ricketts family has a plan to squeeze extra revenue out of the Cubs’ impending postseason games: selling options on tickets. Murphy’s Bleachers, the well-known bar with a rooftop view into the park just beyond right-center-field seats at the Friendly Confines, has begun selling reservations for face-value tickets to its rooftop for all three potential rounds of next month’s playoff games.


‘Hamilton’ Producer Tells Senate Show’s Tickets Are Too Pricey
Henri Gendreau – Bloomberg
Florida Senator Bill Nelson wanted to see “Hamilton” on Broadway, but he wasn’t about to pay $800 for a ticket. “This is not capitalism, this is not the free market, this is a rigged market benefiting some greedy speculators,” Nelson, a Democrat, told a Senate panel Tuesday. Congress is taking aim at resellers who use automated software tools to scoop up tickets for Broadway shows, sporting events and concerts. The House on Monday passed a bill, H.R. 5104, that would make it illegal for people to use these “bots” to bypass rules aimed at prohibiting bulk purchases.

Lead Stories

Volume in the Volatility Market Absolutely Exploded During Tuesday’s Rout
Lu Wang and Oliver Renick – Bloomberg
Two investor obsessions, volatility and exchange-traded notes, are being taken to increasingly extreme lengths in the U.S. stock market. For the first time on record, the iPath S&P 500 VIX Short-Term Futures ETN recorded more volume on Tuesday than any company in the S&P 500 Index, with a record 110 million shares changing hands. The closest was Bank of America Corp., with 89.3 million shares trading. The note slipped 3.5 percent on Wednesday as the S&P 500 Index rebounded.

Why Market Volatility Is Driven by the Credit Cycle
Russ Koesterich, Blackrock – Market Realist
Credit market conditions have historically had the tightest correlation with market volatility (see the dotted line in the chart below). When credit markets are struggling, indicated by wider spreads, volatility is almost always elevated. High yield spreads have come in dramatically since the January panic, but volatility has declined at an even faster rate. Based on high yield spreads, which have historically explained about 60% of the variation in the VIX, volatility should be closer to 20 (see the arrow in the chart below) than the low teens.

Is Higher Volatility With Us for a While?
Liz Ann Sonders – Barron’s
Here are the key points of this article: Conflicting comments by myriad Fed officials were blamed for Friday’s rout, but one official’s speech on Monday was credited with Monday’s rebound; It’s human nature to find an explanation for every market move; but investor sentiment may have been the biggest factor.

Rout in Emerging-Market Currencies Gets No Trader Respect
Taylor Hall, Ye Xie and Natasha Doff – Bloomberg
The selloff in emerging-market currencies that has shocked investors out of a torpor in recent days is being taken as little more than a nuisance than the beginnings of a bear market. While the MSCI Emerging Markets Currency Index has fallen 1.7 percent in a four-day slide that started Sept. 9 after gaining more than 10 percent from its January low, derivatives show the premium traders are paying to protect against further declines is about the lowest since 2014.

****SD: I’m guessing if there was an 80s comedy starring Rodney Dangerfield about trading it would have equal chances of being awesome or garbage. Actually, there is a third option — awesome garbage.

Japan options traders batten down the hatches
Nikkei Asian Review
Investors here are turning pessimistic ahead of key events at the Japanese and American central banks, betting that the benchmark stock index will decline.

Wall Street’s ‘fear gauge’ shows it’s about to get wild in the stock market
Mark DeCambre – MarketWatch
So much for the those calm markets. Wall Street’s “fear gauge” is rearing higher as U.S. equities logged a second sharp selloff in the past three sessions, as hand-wringing over central-bank monetary policy contributes to a renaissance of volatility.


Miami International Holdings’ Form 1 Application for MIAX PEARL Published by SEC
Yahoo Finance
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options Exchange (MIAX Options), today announced that its Form 1 Application for MIAX PEARL has been published by the Securities and Exchange Commission (SEC) in the Federal Register for comment. MIAX PEARL will be MIH’s second fully electronic U.S. options exchange and will serve as a counterpart to MIAX Options by providing a price-time allocation model. MIAX PEARL is expected to launch in early 2017, pending SEC approval, and further details about the exchange will be publicized at a later date.

Nasdaq Commodities launches OptionsCity’s City Platform for European Power Products
Nasdaq Commodities is dedicated to provide customers with multiple access possibilities to our markets via state-of-the-art software tools delivered by leading Independent Software Vendors (ISVs). We are pleased to announce that OptionsCity’s Software City Platform, including CityTrader and City Execution products, now offers direct access to Nasdaq Commodities Nordic and German power markets.

Regulation & Enforcement

The Robin Hood Tax Is Dead. Just Say So.
Mark Gilbert – Bloomberg View
A handful of European Union nations is trying to maintain the fantasy that a tax on financial transactions makes sense. After five years of jawboning, negotiating and backtracking, they need to face up to the reality that the tax is unworkable, unwarranted and unwanted.

A Dodd-Frank Rollback Bill Clears a House Committee
Victoria Finkle – NY Times
A House committee on Tuesday approved a bill to roll back significant portions of the financial-crisis-era overhaul known as the Dodd-Frank Act in a vote that was largely down party lines. The legislation, the Financial Choice Act, is not expected to be adopted this year. But it could influence the broader debate over financial reform and provide a starting point for its sponsor, Jeb Hensarling, Republican of Texas and the chairman of the House Financial Services Committee, whose leadership role on the panel is set to end in two years.

Hong Kong regulator fines HSBC for regulatory breaches
Hong Kong’s securities regulator said on Wednesday it fined and reprimanded HSBC for regulatory breaches and internal control failings related to its position in the futures and options contract market.


Barchart Names Mitch Naumann as Head of Institutional Sales
Yahoo Finance
Today, Barchart, a leading provider of financial market data and technology, announced that Mitch Naumann has been named Head of Institutional Sales. Naumann who most recently served as Institutional Sales Director, joined Barchart in 2008 as a Sales Associate. Naumann has worked to open up new markets to Barchart as well as build strategic relationships and generate new business around Barchart’s market data solutions. Naumann will report to Barchart CEO Mark Haraburda.


Dash’s Amanda B. Johnson Releases Miniseries on Blockchain for Beginners
Avi Mizrahi – Finance Magnates
We asked cryptocurrency video blogger, Amanda B. Johnson, who created this miniseries, who is the target audience and does it provide an unbiased or a strictly pro Dash point of view?

****SD: The longer you wait to get a grasp on blockchain, the worse off you will be.


Market Update: Expiration (VIDEO)
CME OpenMarkets
The market rallied back, and Jack Bouroudjian reminds us to take this into account when there is Expiration on Friday. There is also another Fed meeting next week that will be large in the Interest Rates scenario. The next few days are going to be critical for stocks, bonds and forex.

****SD: Video is just under two minutes.

The Implications Of Implied Volatility For Commodities
Seeking Alpha
Implied volatility is a widely used tool in analysing the stock market, and is a useful indicator for market timing. Aside from the CBOE VIX Index (for the S&P500) there are also implied volatility indexes for several commodities (oil, gold, silver, corn, soybeans, wheat). This article examines the usefulness of commodity implied volatility for informing trading views and highlights the current trends and market implications.

How to trade the oil market right now
Brian Stutland – CNBC
Oil prices dropped 36 percent during the fourth quarter of 2015 and the first quarter of 2016, only to rebound back to roughly $53 just six months later. More recently, oil dropped 23 percent only to rebound back to nearly $50 again. With all the up and down volatility, traders have been eyeing the $45 mark as fair value for oil where supply meets demand.


What Happens After Big Spikes In The VIX?
Seeking Alpha
I ran a quick study this morning to look at what happens to stock market volatility following large single-day volatile events. Note that we are looking at market volatility here, not direction, because the directional message is simpler and clear: historically, large volatile events in stocks have come after declines. Since stocks mean revert, these have quite consistently been good buying opportunities. That’s a surprising message for the people who would have you think the VIX, the FEAR GAUGE, is the harbinger of doom – when the VIX goes up a lot, you should be buying stocks.


The Merging of Music and Wall Street Is Strong
Wall Street Dead aHead Networking Events (“WSDA”) will hold their 6th sold out gathering September 28th, 2016. The Event will be held at Manhattan’s Tir Na Nog, located at 315 West 39th Street between Eighth and Ninth Avenues. It will feature a concert by Terrapin; open-bar beer and wine with specialty cocktails provided by Russian Standard Vodka; appetizers, and very cool sponsor bags with the priceless “Set List.”


U.K. Likely to Invoke Article 50 in January, Nigel Farage Says
Simon Kennedy and Francine Lacqua – Bloomberg
Former U.K. Independence Party leader Nigel Farage said the British government will likely trigger formal talks to leave the European Union in January. Speaking to Bloomberg Television in Strasbourg on Wednesday, Farage identified the first month of 2017 as the likely date for Prime Minister Theresa May to activate Article 50 of the Lisbon Treaty, which starts two years of negotiations.

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