JLN Options: VIX Futures’ Record-Setting Surge

Mar 22, 2012


VIX Futures’ Record-Setting Surge
Betting increases in VIX futures, but index seems unlikely to make a big move
By Tyler Craig, InvestorPlace
The CBOE Futures Exchange (CFE) recently announced the open interest in VIX futures reached a new all-time high at 282,314 contracts. The besting of the previous record set a short four days earlier on March 1 is yet one more sign of the investing crowd’s growing interest in the CBOE Volatility Index (CBOE:VIX) and its related trading products.
While it is easy to conclude the uptick in activity reveals a rise in popularity, it is difficult to determine what implications, if any, this may hold for the future direction of the VIX Index. While some may contend this is a contrarian indication that the VIX is close to a bottom, such an argument is tenuous at best.

Why a Volatility-Linked ETN is Diverging from the VIX
by John Spence, ETF Trends
VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX) was down as much as 30% at one point in afternoon trading Thursday. The volatility-linked exchange traded note was sharply lower even as the CBOE Volatility Index, or VIX, was up roughly 6%.
The divergence between the 200% leveraged ETN and the VIX initially puzzled some market observers and traders because the product is designed to rise along with Wall Street’s fear gauge.
However, as ETF Trends reported last month, the issuer for TVIX, Credit Suisse, halted new share creation.

NYSE says will not appeal veto of D. Boerse deal
By John McCrank, Reuters
NYSE Euronext said on Thursday it would not join Deutsche Boerse in appealing the European Commission’s decision to prohibit the $7.4 billion merger between the two exchange operators.
The deal would have created the world’s largest exchange. European regulators argued it would have given the combined group a near monopoly in the worldwide market for European derivatives.

Bats IPO Makes Exchange Built by Wall Street Public
By Nina Mehta, Bloomberg
Bats Global Markets Inc. (BATS), founded by a high-frequency trader and nurtured by the world’s top securities firms into the third-largest U.S. stock exchange operator, will seek more than $100 million for its owners today.
Bats plans to sell 6.3 million shares between $16 and $18 apiece after the close of trading, according to a filing yesterday with the Securities and Exchange Commission. Underwriters led by Morgan Stanley, Credit Suisse Group AG and Citigroup Inc. are pricing the shares at about 16.9 times estimated 2013 earnings, according to Diego Perfumo, an analyst at hedge fund adviser Equity Research Desk.

BATS IPO pricing under pressure
By Telis Demos, The Financial Times
BATS Global Markets, operator of securities exchanges in the US and Europe, is fighting through a series of worries about US capital markets to price its initial public offering.
The offering, planned at $16 to $18 a share, could raise as much as $130m and give the company a market value of $850m. But indications of interest by investors have suggested the price could be nearer to the bottom of the range, according to market sources.


NYSE Euronext Statement on S. 1933
Press Release (Full Text printed here)
NYSE Euronext (NYX) applauds the bipartisan efforts of our leaders in Washington to facilitate capital formation to enable young, innovative emerging companies to access the capital they need to grow and create jobs. The Senate passage of the Jobs Act, which maintains investor protections, will spur the growth of our economy and jumpstart job creation in America. We hope continued bipartisan leadership will carry this bill to the White House for final passage into law.


Puts Over Calls: Comparing Two Popular Option Premium Selling Strategies
By Steve Smith, Minyanville
Since the market bottomed early last October it has not only mounted an amazing comeback, but has done so in a way that has created a near-perfect environment for two popular option premium selling strategies: covered calls and cash-covered (meaning, no margin) put sales.  The combination of a steady rise in prices and, until recently, a relatively high level of implied volatility, has allowed these strategies to either equal or best the returns of the S&P 500 over the past six months, measured from September 21, 2011, which was about three weeks prior, and 7% above the October low.

ETF Periscope: Low-Level ‘Fear Gauge’ Makes VXX A Sweet Pairs Partner
By Daniel Sckolnik, Seeking Alpha
For the majority of 2012, the market has been acting like a fairly reasonable creature, as opposed to the nervous and jittery beast that dominated Wall Street for the second half of 2011.
Since December, when the European Central Bank finally came up with a big enough “bazooka”, in the form of its Long-Term Refinancing Operation, to address the eurozone banks liquidity crisis, investors have pivoted with rather surprising speed from risk-off to risk-on.
The result has been a strong and steady uptrend in the equity market, which has sent the key indexes soaring to heights not experienced since the financial crisis hit full force back in 2008.

Is a Hedged Market a Bull Market?
by Mark Sebastian, Options Insider
Every talking head on the planet is talking about how ‘low’ the VIX is.  The truth is, the VIX is not low at all (read Jared Woodard’s excellent piece for more on this).  Even with all the evidence pointing toward the VIX being fairly priced, the major naysayers are out saying the market is complacent.  That the VIX is going to have to go up, because there is too much risk.  My response is that I think they are wrong, and the at least in the near term, all other things being equal, we are going to continue to rally.  This is because we currently have a well hedged market.  How do I know, read on:

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