Observations & Insight

McGladrey: Tired of your mark to market election? IRS has good news.
John Lothian
Our friends at McGladrey shared the following commentary with JLN for publication

New Revenue Procedure makes it easy to revoke 475(f) elections

There are various reasons that traders find refuge in a mark to market election under IRC section 475(f). Some are looking to avoid disallowed losses caused by wash sales and straddles (offsetting positions), both of which can arise when trading frequently. Others find themselves with a losing year, and make the election to obtain ordinary treatment on losses, freeing them up for carryback to earlier years. In any case, circumstances change, and what was once a blessing can now be a curse. For those who’ve switched to buy and hold strategies, or gotten deep into 60/40-eligible commodities contracts, the mark-to-market election can rob the significant benefits of long-term capital gains.

Lead Stories

What’s Better: Earnings Season Or Derby Prep Season? – Alcoa Inc. (NYSE:AA)
Nicole Sherrod – Benzinga
When I’m at the track, I use just about every data point in the Daily Racing Form. Similarly, when it comes to earnings, I pay close attention to Market Maker Move which summarizes the options pricing data to suggest how strong of a move (though not the direction) the stock might have post earnings announcement.
This is all crystalized into one smart little data point. It’s like the Beyer speed figure of earnings trading. I also like to look at options time and sales, and options product depth to get a better understanding of what the crowd seems to think about the stock.

Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts
Jesse Colombo – Forbes
Six years after the Global Financial Crisis, the U.S. stock market continues to soar to new heights with nary a pullback or correction. In this piece, I will explain why the stock market is experiencing a new bubble that is actually another wave of the bubble that has existed since the mid-1990s.

Stocks gain momentum, Europe at seven-year high
World stocks marched higher again on Thursday, drawing support from European auto sales and German trade data, while expectations that the first U.S. interest rate increase will come in the latter part of the year continue to grow.
Investors also breathed a sigh of relief as Greece confirmed it will pay a 450 million-euro loan tranche to the International Monetary Fund on Thursday, meeting a deadline and taking the immediate heat off the cash-strapped country.

Cost of hedging sterling exposure jumps as UK election nears
Anirban Nag – Reuters
Bets on how volatile the British pound will be over the next month rose sharply on Thursday, driving to multi-year highs the cost of taking out insurance against swings in the currency before May’s general election.
Options market pricing showed a jump in the cost of hedging against volatility around the May 7 election date. Opinion polls show the ruling Conservatives and the opposition Labour neck-and-neck, making a hung parliament likely and spelling a lengthy period of uncertainty.

Junk debt is ballooning even as earnings, liquidity fizzle
Ellie Ismailidou – MarketWatch
With rates stuck near historic lows, investors are left hunting for richer returns wherever they can find them.
It is no surprise then that high-yield corporate bond issuance broke records in March.

Currency traders rush to price in UK election uncertainty
Michael Hunter and Eric Platt – Financial Times
The most closely-fought UK general election in a generation has triggered the first sign of notable financial market tension, with investors clamouring for insurance against sharp swings in the value of the pound.
With less than a month left until voters mark their ballots and little separating the two main parties in the polls, the currency market has registered a pronounced rise in volatility, suggesting that investors are preparing for a period of elevated political uncertainty.

Forget Interest Rates, the Fed Has Another Big Decision to Make in the Next Year
Matthew Boesler – Bloomberg
In case exiting years of zero interest rates won’t be hard enough, Federal Reserve officials have another challenge approaching quickly: when to begin unwinding trillions of dollars of bond purchases that constitute the world’s largest fixed-income portfolio.

Jefferies to Sell Bache Futures Unit, Buy Forex Ops
Angela Chen – WSJ
Jefferies Group LLC has agreed to sell its Bache commodities and financial derivatives unit to Société Générale SA, while bulking up in foreign exchange by buying Faros Trading LLC, a unit of FXCM Inc.
Financial terms of the deals weren’t disclosed.

Between Fed Lift-off And Living In The New Normal – PIMCO Equity Cyclical Equity Outlook
Q: With the Fed poised to start the slow process of rate normalization, what do you expect from the equity markets?
A: As we discussed in January, we believe that global equity markets will be volatile in 2015. While our New Neutral outlook is supportive of equities, the US monetary normalization process is likely to have some short-term impact on equity markets.


Nadex records 38% YoY increase in trading volumes in Q1’15
Maria Nikolova – LeapRate
The exchange, which is one of the handful of venues for trading binary options in the United States, has just announced some strong results for the first quarter of 2015. Volume of binary options and spread contracts traded on the exchange surged by 38% in the first quarter of 2015, compared with the first quarter of 2014 which also saw some solid metrics. Therefore, we can see a trend of continuous trading activity growth on Nadex.
The robust trading results are in line with the trading update recently released by IG Group.

Large Inflow of Money Witnessed in CBOE Holdings, Inc.
Michelle Lancaster – TriCity State
The shares of CBOE Holdings, Inc. (NASDAQ:CBOE) traded with a loss of -0.11 points or -0.19% in the most recent session. The shares last traded at $56.57. As per the trading info, the shares saw $11.44 million in upticks and lost $8.28 million in downticks, resulting in a net money flow of $3.16 million.


China’s IMF Ambitions Send Warning Signal to Yuan Short-Sellers
Ye Xie and Fion Li – Bloomberg
There are plenty of things luring short-sellers to the Chinese yuan right now.
Growth is slowing. Capital is flowing out. And by some measures, the yuan is the most overvalued currency in the world.
Yet there’s one big reason not to bet against it: the People’s Bank of China is on the other side of the trade.

Fun With Numbers: Revisiting the VXX and XIV Trade
Adam Warner – Schaeffer’s Investment Research
Something about this iPath S&P 500 VIX Short-Term Futures ETN (VXX) vs. the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) short strategy occurred to me. I don’t actually have to speculate how it works, I can use actual data to see how it performed over time.


How would Russell do it?
Press Release – Russell Investments
Global multi-asset manager Russell Investments has launched a novel online experience that allows U.S. institutional investors to participate in a web-based, interactive game navigating real-life investment challenges and select their preferred course of action from three options. The situations encountered in the How would Russell do it? game are inspired by real-life challenges that Russell Investments’ non-profit, pension, healthcare and defined contribution clients face on a regular basis.

Here’s How Financials Relate to Interest Rates
John Jagerson and Wade Hansen – InvestorPlace
When analysts discuss the “financial sector,” they are often too general about what kinds of stocks they are referring to within the sector.
In the broadest terms, the sector includes banks, brokers, insurance companies, real estate investment companies, business development firms and credit card companies, which is a fairly broad spectrum of different kinds of business activities to lump together.

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