JLN Options: TIPS show inflation alarm fading as options give Fed time

Oct 1, 2012

Lead Stories

TIPS show inflation alarm fading as options give Fed time
Liz Capo McCormick and Daniel Kruger, Bloomberg (via Futures)
Bill Gross, who runs the world’s biggest bond fund, says the Federal Reserve’s open-ended plan to flood the economy with $40 billion a month will ignite inflation. The options market is signaling that won’t happen anytime soon.
Demand to protect against higher long-term bond yields over the next six months has been static since Fed Chairman Ben S. Bernanke announced a third round of quantitative easing, or QE3, Sept. 13, Barclays Plc data shows. Appetite, though, is rising for options that mature in 2015. Traders’ expectations for consumer price increases as measured by inflation-protected Treasuries have fallen from highest levels since 2006.

Leveraged VIX ETFs Tumble Over 95% This Year
John Spence, ETF Trends
Although they’re not designed as long-term investments, the performance of a pair of leveraged exchange traded products that invest in VIX futures contracts is shockingly bad in 2012.

Hot New CTAs: Not your father’s option traders
Daniel P. Collins, Futures
This is the 23rd year Futures has profiled emerging commodity trading advisors (CTAs), and while every year is unique, we have seen a trend in recent years toward more short-term and option programs.  This year we focus on three unique option programs. Perhaps this is the result of a difficult environment for trend-followers, but it also may be a realization that for emerging managers to be recognized, they must separate themselves from the pack and offer something unique.

Fear Factor: An ETF to Hedge ‘Black Swan’ Events
Tom Lydon, ETF Trends
Institutional investors worried about the U.S. fiscal cliff and the European debt crisis think a so-called tail risk event is a very real possibility over the next year…
The First Trust CBOE S&P 500 VIX Tail Hedge Fund (NYSEArca: VIXH) tries to reflect the performance of the CBOE VIX Tail Hedge Index, which follows the S&P 500 Index and allocates a percentage to a long position in a call option on the CBOE Volatility Index, or “VIX.”

36 South launches tail risk hedge fund investing in long-dated options
Clare Dickinson, Hedge Funds Review
36 South’s new fund builds on its existing offering of tail risk and long volatility hedge funds. The fund aims to protect against black swan and less predictable events with long-dated options.
36 South Capital Advisors is launching a tail risk protection strategy which is designed to make a positive return during extreme market events.
Co-founder and chief investment officer Richard (Jerry) Haworth says extreme downside events are occurring more frequently than is priced into options.

100 Insightful Options Traders Worth Following on Twitter
Jared Cummins, Commodity HQ
Options investing is one of the safest and most effective ways to add exposure to risky assets like commodities. Options allow users to limit their downside risk while also affording the opportunity of making speculative calls on all kinds of assets. But keeping up with options and all of the various trading methodologies out there can be a difficult task. Luckily, there are plenty of well-versed Twitter experts around the internet to help you get a handle on how to properly use option contracts as well as actionable trade ideas.
** Yup…we’re on the list.  You can follow JLN Options by clicking on the “Follow” button above our Twitter feed in the column to the right of our stories.  Once at Twitter click on “Follow” there and you can get our updates throughout the day. –JB


NSE to conduct special trading session on Oct 6 (India)
The National Stock Exchange (NSE)will conduct special live trading sessions on October 6 in futures & options and currency derivatives segments.
The exchange will be conducting mock-trading session to test the system performance in the Currency Derivatives and Futures & Options (F&O) segments on Saturday, October 6, 2012, NSE said in two separate circulars.


Court Blocks Dodd-Frank Curbs on Derivatives Speculation
Silla Brush and Tom Schoenberg, BloombergBusinessweek
U.S. efforts to curb speculative derivatives trading in the wake of the 2008 financial crisis were blocked by a federal judge, who ruled that regulators botched the process used to put new limits in place.
Less than two weeks before curbs were set to take effect, U.S. District Judge Robert Wilkins in Washington ruled that the 2010 Dodd-Frank Act required more study before setting caps on positions in oil, natural gas, wheat and other commodities. The Commodity Futures Trading Commission failed to first assess if the rule, slated to take effect Oct. 12, was necessary and appropriate under the law, the judge ruled yesterday.


Get Ready for a Volatility Shock
It pays to be cautious when the VIX is at muted levels and the market looks calm. The comforts of a put-spread collar. 
Jim Strugger, Barron’s
Among the many skills common to successful investors, one trait is paramount: the ability to mitigate the risk of known unknowns.
When some react just to the day’s market events, like Friday’s weak economic data that sent stock prices lower, seasoned investors prepare for major market events that they know are coming, but that have uncertain outcomes, such as the U.S. presidential election in November or the so-called fiscal cliff at year’s end.

How a Conservative Investor Uses Options to Reduce Risk – Option Ideas
C. Talmadge Bell, NASDAQ
For many investors, options are seen as a speculative tool for short-term swing trades that may have a very high risk component. However, there are specific options strategies that have always been used by very conservative investors and institutions.
In this article, we’ll discuss options strategies that even the most conservative investors can use to lower risk and protect the value of long-term holdings. These guidelines will illustrate some of the safest ways to use options without incurring high risk exposure.

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