JLN Options: Volatility Bets Rise to Record as VIX at Five-Year Low

Aug 15, 2012

Lead Stories

Volatility Bets Rise to Record as VIX at Five-Year Low
Nikolaj Gammeltoft and Cecile Vannucci, Bloomberg
Investors are piling into securities that gain should equity volatility increase, a bearish bet on stocks that was last popular when the Standard & Poor’s 500 Index climbed above 1,400 in March.
Outstanding shares jumped to a record for the three most- used exchange-traded securities that profit from volatility gains in U.S. stocks, according to data compiled by Bloomberg. The Chicago Board Options Exchange Volatility Index, known as the VIX, dropped 2.8 percent to 14.44 as of 9:57 a.m. in New York after reaching its lowest level since June 2007 earlier this week.

US STOCKS-S&P 500 likely to be mired until options expire
Edward Krudy, Reuters
Sideways trading in the S&P 500 around the 1,400 level on Wednesday was likely to continue through options expiry at the end of the week, with positions in the options market expected to pin the index to that level absent other catalysts.
Despite slight incremental gains U.S. equity markets have basically been little changed for about a week as the S&P 500 hovers close to a four-year high. Light trading volumes and a lack of news from Europe have meant few catalysts for traders.

JPMorgan Bank to Hold Collateral After Futures Firms’ Losses
Matthew Leising, Bloomberg
JPMorgan Chase & Co. (JPM) will allow customers to house excess swaps and futures collateral in a separate bank account as it seeks to reassure investors after losses at MF Global Holdings Ltd. (MFGLQ) and Peregrine Financial Group Inc.
The new service will allow clients to automatically aggregate excess margin at JPMorgan Chase Bank N.A., the firm’s insured deposit-taking unit, Emily Portney, head of agency clearing, collateral and execution at the New York-based bank, said in a telephone interview.
** The beginning of the end for FCMs?  –JB

Emerging Stocks Fall as Chinese Shares Drop Most in Three Weeks
Michael Patterson and Sridhar Natarajan, Bloomberg
Emerging-market stocks fell, led by the biggest drop in Chinese shares in three weeks, as rising bad loans fueled concern the nation’s economic slowdown will deepen…
The iShares MSCI Emerging Markets Index (MXEF) exchange-traded fund, the ETF (EEM) tracking developing-nation shares, fell for a third day, dropping 0.3 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 1.7 percent.

Investors appear to dismiss some market risks
Adam Shell, USA TODAY
Are investors getting too complacent and underestimating the risks that could derail their stock portfolios?
By one statistical measure, the answer appears to be yes. But if other measures of investor sentiment are taken into account, you could just as easily conclude no.
**  Here is that complacency thing again which was suggested in a different article (http://jlne.ws/NxZuCu) I posted yesterday. –JB

Options In Focus: VIX’ated on Complacency
Tom Gentile, Optionetics.com
The CBOE Volatility Index rallied about about 7% with an hour left in Tuesday’s session 7%. But despite the bid, investor sentiment remains much more sympathetic to the fear of missing out than one of panic. And that continues to be a potential issue for the broader market’s ability to move higher.
**  Here it is again (the complacency bit).  –JB

Keep derivatives behind the ring fence
Jonathan Guthrie, Financial Times
A hedging tool can be used for good or ill. To cut the privet or to chop up grandma. Financial instruments also take their moral colour from their context. So derivatives – interest-rate swaps especially – are deemed dangerous following their mis-sale to small businesses and exploitation by Libor-fixing traders.
** Gotta give this one props for one of the most interesting lede’s I have seen in a financial article in a long time. –JB

Share price mystery clouds Focus Media buyout
Wei Gu, Reuters
Going private may give Focus Media (FMCN.O) a break from accusations by a U.S. short-seller over the quality of its accounting. But the 8 percent jump of the Chinese group’s stock ahead of the $3.5 billion management buyout offer raises new questions. It comes uncomfortably soon after insider trading accusations around oil major CNOOC’s $15 billion bid for Canada’s Nexen, and may fuel concern that insider culture is too strong in China.

OptionMonster Cash Money Zone with Eric Wilkinson:


BATS takes aim at retail market share with new plan
John McCrank, Reuters
BATS Global Markets, the No. 3 U.S. stock exchange, said on Tuesday it plans to offer discounts of a tenth of a cent on retail orders, similar to a controversial pilot program at the New York Stock Exchange regulators approved last month.
The BATS retail price improvement program (RPI) sets retail investors apart from funds, brokers and other professionals, who will still pay publicly displayed prices for securities.


Zig When Others Zag in Consumer-Discretionary Stocks
Steven M. Sears, Barron’s
The consumer-discretionary stock sector is mounting a stealth rally in direct conflict with the generally accepted precept that consumer spending is under great pressure.
The Consumer Discretionary Select Sector SPDR (ticker: XLY) is climbing the proverbial wall of worry – and outperforming the Standard & Poor’s 500 index – that characterizes bull markets even as investors warehouse bearish puts in anticipation of a sharp decline.

A Low VIX, But All Implied Volatilities Are Not Created Alike
Richard Bloch, Seeking Alpha
Although the VIX is making multi-year lows, it’s important to remember that the VIX measures only one kind of option, the implied volatility of at-the-money options on the S&P 500 that expire in 30 days.
Ananthan Thangavel did a great job explaining the opportunities available for buying put options, but there was this question from “untrusting investor” I thought I’d address:

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Seeing red: tricky times in the markets

Seeing red: tricky times in the markets

$34,126/$300,000 (11.4%) ++++ Lead Stories Seeing red: tricky times in the markets Stefan Wagstyl - Financial Times As investors we like to think we're acting rationally, even though there are mountains of evidence to show that, all too often, we're not. A successful...

Pin It on Pinterest

Share This Story