JLN Options: Yen Confounds Forecasters as Options Show Deeper Declines; VIX Leads The Way…Lower; Short attention span trading: Popularity of 20-Minute options grows on Nadex

Nov 11, 2014

Observations and Insight

Steve Tucker, S&P Capital IQ – Dynamic Data: How markets use and consume information

“If you think about it…nothing happens in our industry without [data]. There are no fiscal decisions made, there are no financial trades made, there are no mergers and acquisitions.”

Steve Tucker, managing director, global head of enterprise and real-time solutions for S&P Capital IQ, discusses the importance of data and how the digitalization of data has affected today’s financial industry. Tucker gives a humorous opening example of two hamsters his son acquired, and how his son did not realize that he had a male and female hamster. After discovering a new set of baby hamsters in their household, Tucker relates this experience to how important knowing your data is, and then calculates the possible number of combinations of breeding hamsters his family could end up with. Tucker also discusses new and innovative ways firms are tapping into data and what the future of markets and trading holds for new graduates.

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Lead Stories

Yen Confounds Forecasters as Options Show Deeper Declines
Rachel Evans – Bloomberg
The yen is confounding analysts again, plummeting faster than anyone imagined just weeks ago.
Traders from Citigroup Inc. to Bank of America Corp. are updating projections for more yen weakness after the currency dropped to a seven-year low today on speculation Japan Prime Minister Shinzo Abe may call for early elections to solidify his support. That pushed the currency’s decline to 8.7 percent this year and 28 percent since Abe was elected in December 2012 on a pledge to end two decades of deflation.

VIX Leads The Way…Lower
Anna Coulling – Investing.com
As equity markets continue to climb ever higher and breaking out into new high ground, it is the VIX which is moving at the same speed in the opposite direction, as fear is replaced with complacency with the sun shining again as risk appetite returns to the markets. For the VIX it’s been a roller coaster ride following the sharp reversal of mid October, which saw the index touch an intraday high of 31.06 before closing on the 15th October with a long legged doji candle, signaling potential market indecision, with the candle of the 16th October then confirming this with an inside day.

Short attention span trading: Popularity of 20-Minute options grows on Nadex
John Melloy – CNBC
In just one week, options contracts with an expiration of 20 minutes have become the second most popular offering on trading platform Nadex, as investors seek faster and faster gratification.
The contracts were launched last week with little fanfare by Nadex, the leading provider of binary options in North America. The company offers options with many durations and did not expect the tremendous level of early interest it’s seen. Hourly contracts remain the most popular kinds of options on the company’s platform.

As Fixed-income ETFs Fall, Will VXTYN Futures Have Huge Upswings?
Matt Moran – CBOE Options Hub
In a 2012 op-ed piece in the Wall Street Journal, Professor Burton Malkiel wrote – “Bonds are the worst asset class for investors. Usually thought of as the safest of investments, they are anything but safe today … the 10-year U.S. Treasury note is a sure loser.”
How can investors monitor and manage interest-rate volatility? Futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) is scheduled to launch on Thursday, November 13.

Volatility ETFs: The Biggest Wealth Transfer From Retail Investors to Wall Street in History
Jared Dillian – Equities.com
Ten years ago, when I worked on the equity index derivatives desk at Lehman, we used to sit around and dream things up. Like, we wondered out loud if you could actually create a volatility ETF.
It seemed like a brilliant idea. Who wouldn’t want to buy volatility? There were some studies going around that said holding volatility as an asset class alongside a diversified portfolio could improve the portfolio’s risk characteristics.

S&P 500 Going to 2,225 Says UBS Seeing Higher Volatility
Oliver Renick – BloombergBusinessweek
Equities will keep hitting records next year as companies benefit from an expanding U.S. economy and volatility creates opportunities for investors, according to UBS AG strategist Julian Emanuel.
The Standard & Poor’s 500 index will climb 9.5 percent from last week’s close to 2,225 by the end of 2015, Emanuel wrote in a report today. S&P earnings will reach $126 a share, up 11 percent from today’s level, Emanuel wrote.

Hedging Chinese stocks pricey as volatility fears persist
Saqib Iqbal Ahmed – Reuters
China’s uncertain economic path has made investors cautious, and they are stepping into the options market to protect against the chance of big swings in individual names.
While U.S. stocks shrugged off a mid-October pullback, options market data for the last couple of weeks shows traders have continued to bid up the cost of hedging losses in Chinese stocks.

A Few Takeaways from the VIX Spike
Adam Warner – Schaeffer’s Investment Research
So, I just spent a few days in Montreal doing research on the CBOE Volatility Index (VIX) (or hockey research … something like that). Anyway, I came up with a few takeaways:
I can’t understand a word in French.
Uber’s a really great invention.
Hockey is much more popular than inverse exchange-traded funds (ETFs).

Regulation and Enforcement

ESMA Convenes on Revamped Trade Repository Reporting Standards
Jeff Patterson – Forex Magnates
The European Securities and Markets Authority (ESMA) has published its latest consultation paper on the revision of its Regulatory Technical Standards (RTS) in relation to EMIR.
Each month, ESMA releases a Q&A designed to help inform market participants of European Market Infrastructure Regulation (EMIR). More specifically, this includes implementing technical standards (ITS) that help streamline the overall transaction reporting process.

Options Education

“V” Shaped Bottom for the SPX
Bob Lang – CBOE Options Hub
Everyone hates a ‘V’ bottom because it rarely gives a chance to get on board and messes with a trader’s mind.  Once again, we have another rally that is hated by everyone.  This one was a whopper – 220 SPX points in just three short weeks, an historic move in such a short time period.  Most didn’t get in before the turn and a slew of others thought the end of the bull rally was nigh and leaned to the bearish side too heavily.

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