JLN Options: The Hong Kong Fear Index Is Getting Extreme

Aug 20, 2012

Lead Stories

The Hong Kong Fear Index Is Getting Extreme
Belinda Cao, Bloomberg
Options traders are charging the biggest premium since March to protect against losses in Chinese companies on signs that a slowdown in the world’s second-largest economy is worse than economists estimated.
The AlphaShares Chinese Volatility Index, derived from options on companies listed in Hong Kong, traded at a premium of as much as 41 percent over the Chicago Board Options Exchange Volatility Index last week, the biggest gap since March 29.

Most Emerging-Market Stocks Retreat Amid China Policy Concern
By Zahra Hankir and Sridhar Natarajan, Businessweek
Most emerging-market stocks fell on concern China will hold off easing monetary policy as property prices rebounded and after the Bundesbank criticized the European Central Bank’s bond repurchasing program.
The MSCI Emerging Markets Index (VXEEM) retreated 0.2 percent to 969.45 by 11:44 a.m. in New York, with 340 stocks declining compared with 233 advancing. Brazil’s Bovespa stock index slid for a second day with wireless carrier Tim Participacoes SA (TIMP3) dropping to the lowest level in four weeks. Soho China Ltd. (410), a property developer, lost 3.5 percent. The Shanghai Composite Index slumped to the lowest level since July 31.

CFTC Shows Speculators Slightly Trim Most Metals Positions
Debbie Carlson, Kitco News
Speculators got out their scalpels and made only slight cuts to their net-long position in most precious metals futures and options positions on the Comex division of the New York Mercantile Exchange and the Nymex, according to U.S. government data released Friday.
For the week ended Aug. 14, speculators in the Commodity Futures Trading Commission’s weekly commitment of traders report saw their net-long positions in gold and platinum group metals fall modestly in both the legacy and disaggregated reports. Only in silver did funds add a little to their net-long positions. Speculators increased their bearishness in copper, bumping up their net-short positions.

Bulls Buy Calls on Financials
Steven M. Sears, Barron’s
History is now being made in the options market.
Nimble investors can take advantage of an historical anomaly in the CBOE Volatility Index (VIX) that creates great opportunities for bulls and bears.
The fear gauge, as VIX is popularly known, is trending below 15. This means the bearish puts and bullish calls are available for purchase without a fear or greed premium. No one really knows how long this condition will last.

Double Whammy for Volatility ETFs: Falling VIX and Contango
John Spence, ETF Trends
Volatility ETFs are facing a war on two fronts in a declining CBOE Volatility Index combined with the steepest VIX futures curve since the financial crisis.
The spot VIX that investors see quoted in the news as Wall Street’s “fear gauge” has fallen to the lowest level in five years.
A falling VIX has weighed on volatility-linked ETFs.

OptionMonster Daily Volatility Report with Jamie Tyrrell of Group1 Trading:

OptionMonster Cash Money Zone with Eric Wilkinson: 


CME Is Said to Plan Derivative Exchange in Europe
Michael J. De La Merced, Dealbook
The CME Group is planning to start a European derivatives exchange, in a significant expansion of the American market operator’s global footprint, a person briefed on the matter said on Sunday.
** Yet another exchange?  Competition is a good thing though (usually). –JB

ICE to offer rebate in coal futures trading
Intercontinental Exchange (ICE) will introduce a monthly rebate system for coal futures traders from September in an effort to boost trading volumes, the exchange said on Monday.

NSE emerges world’s 2nd largest bourse in index, stock futures (India)
The National Stock Exchange emerged as the world’s second-largest bourse in terms of turnover in trading of index as well as stock futures, according to latest data…
NSE is ranked second in trading turnover for index futures for the month of June, just behind European bourse Eurex, according to market regulator Sebi’s July bulletin.


Insider Trading Language Gets Workout at NY Trial
Larry Neumeister, Associated Press
The definition of insider trading has gotten a workout at the Manhattan federal trial of a San Francisco hedge fund founder after he testified that information he elicits from public company executives about earnings or future prospects is legal as long as he is not told exact numbers.
** One would think “material non-public information” is pretty straight forward.  Is the info available to anyone and everyone (if they bother to go looking for it)? –JB

Korea transaction tax could halve number of derivatives transactions
Justin Lee, Risk.net
Proposal for a transaction tax on futures and options could have a dramatic impact on Korea’s derivatives market
Turnover in the derivatives market in South Korea could be reduced by over 50% if a proposed new transaction tax on derivatives is approved, say market participants.
The Korean ministry of strategy and finance announced the government’s proposed tax law amendments for 2013 that impose a 0.001% tax on Kospi 200 index futures trades, and a 0.01% tax on Kospi 200 index options transactions, effective from January 1, 2016.


Some high-speed traders convinced microwave dishes serve up bigger returns
Melissa Harris, Chicago Tribune
The Lakeside Technology Center at 350 E. Cermak Road is a regal, brick building where the Yellow Pages, Sears catalogs and Life magazines were once printed.
In the late 1990s, the 1.1 million-square-foot plant evolved into a hub for computer servers and fiber-optic cable — it’s “where the Internet lives,” as one technology expert described it in USA Today.
Today all people seem to care about is its roof.


The Hedge is Savvy Investors’ Edge
Steven M. Sears, Barron’s
There are few truths in the market, but this is one: hedge portfolios when options’ implied volatility drops to unusually low levels.
Low volatility suggests investors are too confident the stock market will rise. This often ends poorly.
With the Chicago Board Options Exchange’s Volatility Index (VIX) at a historically low 14.30, investors should take advantage of the volatility lull to buy options that will increase in value if the stock market declines.

What the Vix Tells Us About Fear, Greed and the Madness of Trying to Time the Market
The Vix, or the CBOE Volatility Index, measures the implied volatility of S&P 500 options and is considered a good measure of investors’ fear. In theory, when the Vix is high, it means investors think the market’s risky and likely to make a big move in either direction. When the Vix is low, investors aren’t worried about a big move.

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