JLN Options: Volatility ETFs Thumped on VIX Multiyear Low, Contango

Mar 28, 2012

Lead Stories

Volatility ETFs Thumped on VIX Multiyear Low, Contango
ETF Trends
March 28th at 9:01am by John Spence
April may be the cruelest month, but March has been pretty bad for volatility exchange traded products designed to track VIX futures contracts. First, these volatility-linked funds have dropped sharply this month along with the CBOE Volatility Index, which touched its lowest levels since the summer of 2007. Second, the exchange traded funds and notes have been hit by so-called contango in the VIX futures market.
http://jlne.ws/GYwZLj

How The VIX ETN Lost 50% In 48 Hours
Seeking Alpha
March 28, 2012
As the ETF industry has rapidly expanded, so too have the options investors have for slicing and dicing markets. One of the most popular innovations in recent years has been the ability to access volatility through the exchange-traded structure; there are now multiple ETPs for gaining exposure to VIX contracts, including a number of inverse and leveraged notes and funds. The past week has seen some bizarre developments in one of the most popular VIX ETNs, offering a lesson in the potential dangers in dabbling in exchange-traded products whose “creation mechanism” has been temporarily switched off.
http://jlne.ws/GX6Wpb

BATS chairman stripped of title
By Telis Demos in New York
BATS Global Markets has stripped Joe Ratterman, the company’s president and chief executive, of his title as chairman in the wake of its botched initial public offering last week. But the board of the US and UK exchange operator announced that it voted to give “unanimous support” for Mr Ratterman to continue as the top executive.  BATS was forced to withdraw its own IPO that would have raised $100m last Friday after a software bug in its IPO auction code halted trading, creating investor confusion.  http://jlne.ws/H0h3sxNote: Ratterman still retains the titles President and Chief Executive Officer of BATS

BATS GLOBAL MARKETS BOARD STATES UNANIMOUS SUPPORT FOR PRESIDENT, CEO JOE RATTERMAN(Press Release) KANSAS CITY, Mo. – March 27, 2012 – BATS Global Markets, Inc. (“BATS”) today announced that its Board of Directors states its unanimous support for President and Chief Executive Officer Joe Ratterman, who has led the company since June 2007. “Joe continues to do a tremendous job as CEO of BATS, leading an organization which now operates the third-largest stock exchange in the U.S., Europe’s largest stock market and a growing U.S. options exchange,” the Board said. “We fully support his leadership, vision and strategic direction as BATS continues to enhance competition and foster innovation in markets worldwide.”
http://jlne.ws/GYK1w1 (pdf)

BATS IPO Business Still Open
After a humiliating meltdown when its own initial public offering had to be withdrawn, the exchange operator will continues with its IPO listing business nevertheless.
By Ivy Schmerken, Advanced Trading
March 27, 2012
In spite of a software glitch that disrupted its own initial public offering on Friday, Kansas-based exchange operator, BATS Global Markets, intends to go forward with its I.P.O. listings business for other corporate issuers.
In an interview with Advanced Trading today, Chief Operation Officer Chris Isaacson admitted that BATS has a lot of work ahead of it to restore its credibility and “win over with corporate issuers.”
Though Isaacson said there is “no set timetable” for resuming its I.P.O. business, BATS has been in touch with multiple corporate issuers.
http://jlne.ws/H0pDnK
BATS Sheds Light on Software Glitch that Scuttled IPO
By Ivy Schmerken, Wall Street & Technology
A software bug that led BATS Global Markets to pull the plug on its own initial public offering last week puzzled Wall Street, since the electronic exchange operator has had reputation for high reliability and efficiency.
In an interview with Wall Street & Technology, Chief Operating Officer Chris Isaacson shed more light on the unexpected turn of events, and what steps BATS took to address the problem. Even though BATS, based in Kansas City, Missouri, spent months on internal testing and weeks of dedicated testing with its customers using test symbols, the technical glitch related to IPO auction software, was not previously detected. “There was a unique scenario of different option/order types. We conducted the auction successfully but we had trouble transitioning from the auction to continuous trading and that is where the bug was exposed,” said Isaacson.
http://jlne.ws/HfbmDo

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News – Mar 28, 2012 10:30 AM CT
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York.
http://jlne.ws/GTQofi

Exchanges

Berkeley Futures Adds Connectivity to DGCX with Patsystems
bobsguide.com “Berkeley Futures Adds Connectivity to DGCX with Patsystems
London28 March 2012
Patsystems, the trading and risk management solutions provider to the derivatives industry, is pleased to announce that Berkeley Futures, one of the UK’s leading Futures, Options and FX brokers, is to provide connectivity to DGCX (Dubai Gold and Commodities Exchange) through its existing Patsystems infrastructure. In adding DGCX with Patsystems, Berkeley Futures will increase their overall coverage to trade futures and options on currency pairs and commodities to their existing and prospective client base.
http://jlne.ws/HfSIzn

Technology

Actant rolls out trading solutions for CME Group markets
Automated Trader 28th March 2012
“Our Quote and ExStream products deliver a mass quote management and algorithmic trading capability we believe is unrivaled.”
Chicago – Actant, the trading solutions provider, has announced the availability of its Quote and ExStream Trading Engine for CME Group markets which supports trading or market making in options and futures.
Recently adapted to facilitate access to CME, CBOT, NYMEX and COMEX markets (or products), Quote and ExStream aims to provide the programming flexibility necessary for the development of safe mass quote automation or order execution management trading strategies.
http://jlne.ws/Hi797k

Strategy

Why the VIX may point the way for high yield bonds
Dan Jones, Investment Week
The so-called ‘fear index’ is increasingly serving as an indicator of future high yield bond performance, according to Dave Bowen, manager of the $3.5bn Muzinich Short Duration High Yield fund. Bowen said the strong correlation between the CBOE VIX volatility index and high yield bond spreads seen over the past 18-24 months could serve as a warning sign for managers.
“The strongest correlation we have seen for high yield bonds has been the VIX, and that correlation has held up recently while the VIX has touched very low levels,” he said. The VIX, which measures the expected future volatility of share prices over the next 30 days, has fallen as markets have rallied this year and dropp
ed below 15 this week to touch its lowest level since June 2007.
http://jlne.ws/GTNIhP

An Aggressive Bet Against Research in Motion
By STEVEN M. SEARS, Barrons.com
Buy a put if you think that the BlackBerry maker could decline sharply on upcoming earnings results.
It’s truth-or-consequences time for Research in Motion.
The troubled maker of the once ubiquitous BlackBerry will report fourth-quarter earnings late Thursday, and associated puts and calls are priced as if shares could rise or fall by 15%. Some think that Thorsten Heins, RIM’s recently appointed chief executive, will make positive comments about cost controls and operational efficiencies, but RIM (ticker: RIMM) is really a product story—not a process-reform play. And sadly, the company’s main product—the BlackBerry—has dramatically lost ground to rival smartphone makers, including Apple (AAPL).
http://jlne.ws/H1lofL

VXX may be a double or triple from here
By Thomas H. Kee Jr., MarketWatch March 28, 2012
Last week I wrote an article that suggested the VIX was a consideration , but probably not the best hedge for long equity positions. I also suggested that I liked the play, but I offered words of caution given its periodic uncorrelated moves. One would think that VIX should increase if the market falls, but sometimes that does not happen. In fact, usually, during times when the VIX is resilient to market declines, it also is vulnerable to market increases; that is exactly what we saw on Monday, and that is exactly what prompted me to write this follow-up article.
http://jlne.ws/HeyAzY

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