Lead Stories

Record Days for VIX Futures and Options Volume and Open Interest This Month
Matt Moran – VIX Views
This year many financial professionals have raised the issue as to whether the VIX level appears to be “low” compared to the levels of worldwide financial insecurity. At the 70th CFA Institute Annual Conference in May 2017, Richard Thaler of the University of Chicago opined that the “low” level of the VIX Index was one of the biggest financial mysteries of our time. As shown in the chart below, in 2017 the averages of the daily levels were 11.5 for the VIX Index and only 7.1 for the 30-trading-day historic volatility of the S&P 500 Index. Compared to the SPX historic volatility, the VIX Index has not necessarily been “low” this year.

Harvey throws a wrench into U.S. energy engine
Ernest Scheyder and Erwin Seba – Reuters
A hurricane in the heart of the U.S. energy industry is set to curtail near-record U.S. oil production for several weeks, with the impact expected to reverberate throughout the country and across international energy markets.
Harvey hit the Texas shore as a fierce Category 4 hurricane, causing massive flooding that has knocked out 11 percent of U.S. refining capacity, a quarter of oil production from the U.S. Gulf of Mexico, and closed ports all along the Texas coast.

****SD: For more about hurricane effects on the energy industry see WSJ’s Energy Firms Brace for Harvey Fallout and The Guardian’s US gas prices expected to rise as Harvey forces Gulf coast refineries to close

What Markets Think About the Looming Debt Ceiling Showdown
Liz McCormick – Bloomberg
Financial markets are suggesting the political drama surrounding Congressional efforts to raise the nation’s debt ceiling will play out more like the lesser of two recent showdowns.
Investor angst, as measured by the CBOE Volatility Index, known as both the VIX and the fear index, is below the levels experienced during 2011 and 2013 confrontations, even as lawmakers face of deadline of a little more than a month to reach an agreement.

Know Your Options
Sarah Max – Barron’s
Many investors today feel damned if they do and damned if they don’t: They need the growth offered by equities, but after over eight years into a bull market—with most asset classes priced for perfection and geopolitical risk at a crescendo—they can’t help but worry.
The $8 billion Gateway fund (ticker: GATEX) employs an options strategy to play both sides of this phenomenon: It capitalizes on the pervasive nervousness by selling call options on the Standard & Poor’s 500 to investors who are worried about volatility, while protecting its own investors from the worst of market declines by buying put options.

Fear begins to creep back into financial markets, with Trump taking centre stage
Nicholas Spiro – South China Morning Post
While the benchmark S&P 500 equity index stands only slightly below its record high set earlier this month and the closely watched Vix index – Wall Street’s so-called “fear gauge” which measures the anticipated level of volatility in the S&P 500 – is just a few points above its historical low, there are signs that international investors are starting to fret about a sharp fall in asset prices.

Who is the sucker when robot trades against robot?
Robin Wigglesworth – Financial Times
It turns out that the robots are human after all.
There has been an explosion of interest in computer-powered investing of all kinds in recent years. Barclays estimates that the assets managed by so-called quantitative hedge funds have doubled over the past decade and hit a record $500bn last year.

Theresa May gives the pound a temporary break, as euro faces key test
Kathleen Brooks – FXStreet
The pound initially popped higher at the market open last night, potentially on the back of newspaper comments that Theresa May will stay in place as leader until August 2019, once we have negotiated our exit from the EU. Although this story has been refuted, it may reduce the chance of her stepping down, or getting ousted, during the October Tory Party conference.

Regulation & Enforcement

Fed Hints at Volcker Reform
Rob Dalyl – MarketsMedia
Federal Reserve Chairperson Janet Yellen raised a trial balloon for tweaking The Dodd-Frank Act’s Volcker Rule during her speech on the first day of the Fed’s annual conference in Jackson Hole, Wyoming.
Fed Hints at Volcker Reform
Federal Reserve Chairperson Janet Yellen raised a trial balloon for tweaking The Dodd-Frank Act’s Volcker Rule during her speech on the first day of the Fed’s annual conference in Jackson Hole, Wyoming.

China’s regulators preparing new rules for digital coin offerings
Chinese regulators are preparing new regulations on digital coin offerings and may ban them until the rules are in place, the financial magazine Caixin reported on Monday, as interest in the new fundraising channel grows rapidly in a regulatory grey area.


Eurex supports electronification with Market-on-Close Futures
Eurex, one of the leading derivatives exchanges and part of Deutsche Börse Group, launches another innovative product to support market participants in electronifying their trading business. As of 30 October, Eurex Market-on-Close (MOC) futures provide a concept to trade index futures at a price level directly linked to the underlying cash market index close, prior to its actual publication.


Wall Street Vets From Dalio to Gundlach Warn on Emerging Markets
Ben Bartenstein – Bloomberg
More investors are joining the cast of Wall Street veterans from Jeff Gundlach to Ray Dalio in warning that risky assets are overvalued.


What’s Behind an Options Price?
All option trades begin with an opinion about the direction of the underlying stock, ETF, or index. Other factors investors should consider include time and volatility. Understanding the interplay between price, time, and volatility when trading options will help you construct better strategies. The Options Industry Council will host Peter Lusk of the CBOE Options Institute, as he discusses the dynamics of options pricing along with how to apply these ideas to spread strategies.
Date: Wednesday, September 13, 2017
Time: 03:30 PM Central Daylight Time
Duration: 1 hour


The Worst-Case Scenario for Passive Investing (Part I)
Stephen Gandel – Bloomberg
The problem with passive investing, I promise, is worse than you think.
There has been plenty of anxiety on Wall Street about the rise of indexing and ETFs, known collectively as passive investing, with the number of indexes exceeding the number of stocks. Academics and financial pundits have posited that index investing may be pushing up consumer prices, though there are also critics who are skeptical that it kills competition. But if your concern about index investing starts and ends with the notion that some fund managers will lose their jobs, that you might have to pay slightly more for an airline seat, and that it’s a small price to pay for lower fees in your 401(k), your conclusion might be incredibly wrong.

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