Investors raise bets that market turbulence will ease; Two popular exchange traded funds nearly double in size this month
Robin Wigglesworth and Joe Rennison in New York – Financial Times
Investors have ratcheted up bets that the stock market’s recent turbulence will ease despite the biggest monthly losses in almost a year, doubling the size of two popular exchange traded funds this month. There has been a proliferation of exchange-traded products that are tied to the value of the Vix, Wall Street’s so-called “Fear Gauge”. The Vix reflects the turbulence of the S&P 500 implied by option prices, and is seen as a measure of investor nervousness. One of the most notable phenomena in global financial markets this year has been the evaporation of volatility, which has netted investors who bet on tranquility some big gains.
***SD: This goes hand in hand with the NY Times story yesterday about day trading and VIX ETPs. And on that same note, Peter Tchir of Brean Capital has a Forbes piece playing off of vol’s newfound publicity/popularity – VIX Sellers Now Flaunt The Magazine Cover Curse
From Stocks to Bonds, the Bear Market Signals Are Multiplying
Cormac Mullen – Bloomberg
Risks are stacking up for markets attempting to recover from the latest provocation by North Korea and the mounting damage of Tropical Storm Harvey.
Citigroup Inc. strategists including Jeremy Hale cite “worrying developments” that may signal the approach of a correction in stocks, while Commerzbank AG finds growing evidence of bearish sentiment in bond funds.
Opinion: Are Digital Currencies Worth the Risk?
Rob Daly – MarketsMedia
Digital currencies are the new bright shiny assets that are captivating hedge funds for the past few years, but are they the appropriate investment for more conservative institutional investors?
Their volatility and explosive growth in value have made them far more attractive to investors living in today’s world of low volatility and tight spreads of regular equities, derivatives, and credit markets.
****SD: Now that the options exchanges are getting in on the deal, more folks pondering this question. Related – Bitcoin sets a record at $4,700 as North Korea fires rockets over Japan
Local variance gamma revisited
Markus Falck and Mikhail Deryabin – Risk.net
We propose a new method for volatility surface construction for FX-options. The result is a sufficiently smooth explicit parameterization of option prices.
****SD: This is real heavy stuff. However, if you want to get super-mathy after reading the abstract, the PDF to the paper can be found here. The key I suppose is that they “measure the average calibration time to less than 1 ms for one expiry on a standard personal computer.” Now, what makes up a “standard” PC is not clear. Standard for a gamer is not the same as standard for grandpa.
Expect post-Labor Day stock trading volumes to surge after a sleepy August
Wallace Witkowski – MarketWatch
August trading volume has been the lightest it’s been in three years, so enjoy the quiet while it lasts because after Labor Day a host of catalysts await traders returning from vacations that could rock the market and boost volumes considerably.
U.S. economic growth hits 3% rate in second quarter
Greg Robb – MarketWatch
The U.S. economic rebound in the second quarter was stronger than initially reported, as a lift to consumer spending and business investment led to the strongest growth in more than two years.
Gross domestic product rose at 3% rate from April to June, up from an initial 2.6% reading, the Commerce Department said Wednesday.
Exchanges and Clearing
CBOE Holdings’ Exchanges Trading Schedule for Labor Day Holiday
CBOE Holdings, Inc. today announced the following trading schedules for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2), CBOE Futures Exchange (CFE), Bats U.S. equities and options exchanges and Bats Hotspot in observance of the Labor Day holiday on Monday, September 4.
****SD: MarketWatch has more on the overall market landscape – Labor Day: Which markets will be closed?
Regulation & Enforcement
Volcker Rule: Mocked Vs Revisions
Kelvin To, Founder And President Of Data Boiler Technologies
The likely Volcker revisions have been so well articulated that they have “almost felt like hope” when it comes to advancing risk practices. Supervisory agencies and the industry seem to be in harmony on many of the proposed changes – debunking their elusive plot now is like being a party pooper; but the Rule has ceased to exist except in name. So, let’s predict what will happen.
New Hedging Rules Will Cut Reporting Costs: FASB
The updated hedge accounting rules issued by the Financial Accounting Standard Board on Monday should cut the costs and burdens of derivatives accounting for companies and encourage fearful ones to enlist in the hedge accounting regime, FASB vice chairman James L. Kroeker said in an interview with CFO immediately following the announcement.
Retail FX should go the way of Netflix and Uber. It is all about user experience these days
Andrew Saks-McLeod – FinanceFeeds
Multi-product wealth management, democratized prime brokerage and high tech execution are three tenets which have been priorities for many retail FX firms during recent months, and indeed these are very avantgarde ideologies which should punctuate the entire retail sector.
****SD: CBOE’s Livevol gets a look in here, too.
Here’s how Goldman Sachs says traders should play a government shutdown
Ryan Vlastelica – MarketWatch
The U.S. stock market remains largely bereft of volatility, but the threat of a government shutdown and other near-term events could provide some near-term trading opportunities.
****SD: The answer: straddles on REIT ETFs.
XIV: It’s Happening Again
Mike Golembesky – Nasdaq
After falling 26% from the July 8th high the XIV has seen a retrace and is now trading 15% up off the August 8th low. The smaller degree wave structure of the move up off that low has been very sloppy and has already provided quite a few twists and turns.
This type of action was not entirely unexpected as this is what we expect when we are within what we call in Elliott Wave terms a “Fourth Wave”. I noted this last week when I wrote that, “Fourth waves are some of the more difficult patterns to project and typically requires traders to be nimble…”
We may, however, be close to the point where we will once again see some clean and tradable setups coming our way in the XIV.
Is The VIX Going To 25 Or Higher?
Andrew Hecht – Seeking Alpha
Throughout the summer months, the stock market in the United States moved to new record highs. The stock market had been nothing short of a one-way street higher since reaching a bottom in February 2016. The beginning of 2016 was an ugly time for stocks as the S&P 500 index fell by 11.5% in six weeks with the other major market indices following to the downside.
Goldman Sachs to explain trading strategy after investor pressure
Reuters via CNBC
Goldman Sachs Group will detail plans to turn around performance at its core bond-trading unit next month after unusual pressure from large investors frustrated by vague explanations of its troubles, people familiar with the matter told Reuters.
****SD: I hope someone at Goldman just comes out with a one slide presentation that (after a bunch of corporate disclosures, of course) just says “We try to buy low and sell high.”