Volatility Players: The Hangover 3, Starring Ben Bernanke
Josh Krause, Seeking Alpha
So the market is still in hangover mode from the rally to end all rallies on Thursday and Friday of last week. The weakness seen on Monday and in the pre-market today has seen some movement in volatility but overall they have been muted by the time the markets closed.
Most likely this is the just the market digesting the new reality that exists with the Fed committed to unending quantitative easing and we will see a new trend in volatility once we get past VIX futures contract expiration today and options expiration on Friday.
Whatever Happened to Risk?
Alen Mattich, The Wall Street Journal
The occasional market downdraft, like the one this morning, acts as a reminder of how much risk perception has drained out of the financial system these days.
Making risk a decent buy these days.
The Fed Is Worried That You Might Be Worried About Uncertainty
Matt Levine, DealBreaker
When you are in the business of buying and selling volatility you can get sort of cynical about whether volatility is a thing, and whether it is appropriate to buy and sell it. We talked earlier today about the fact that if you have a client who doesn’t care about something valuable, then you should buy as much of it from him as you can; you can guess where I learned that. It is superficially persuasive to tell a customer “you don’t get any benefit from the volatility of your stock so you should just sell it to us,” but ultimately you can’t eat volatility. You eat buying low and selling high, and so you rigorously translate the customer’s sale of volatility into buying low (from the customer) and selling high (to the customer). Science!
JPMorgan Sued by Lehman Over $2.2 Billion Derivatives Claims
Linda Sandler, BloombergBusinessweek
JPMorgan Chase & Co. (JPM), fighting over $6.3 billion it says Lehman Brothers Holdings Inc. owes it, was sued by the defunct investment bank as it seeks to reject $2.2 billion in derivatives obligations.
A U.S. bankruptcy judge should rule on the “overstated” demands by the bank, which never supplied supporting documents for its claims, Lehman said in a filing in federal court in Manhattan. Lehman is seeking unspecified damages from the biggest U.S. bank, as well as money due from JPMorgan under the derivatives contracts.
Just How Inexpensive Are Options Getting?
Are you better off now than you were four years ago? What about one year ago? If you’re like most investors, your market sentiment has probably improved substantially. There are plenty of ways to measure investor sentiment – we could look simply at the run-up in stock prices, or use a more sophisticated metric like the level of implied correlation. In between those two estimates, we might also look at the implied volatility of stock options, measured as a percentage of their trailing one year range.
Hedge funds higher in August but underperform broad market
Alanna Byrne, Daniel P. Collins, Futures
Hedge funds were generally up across the board in August though they underperformed the broad market according to Hennessee Group LLC. The Hennessee Hedge Fund Index was up 0.97% in August vs. 1.98% for the S&P 500. Those numbers appear to be following a year-long trend as the index is up 3.82% vs. the S&Ps 11.85%.
Ex-MF Global Equity Derivatives Head Bystrom to Open Fund
Kelly Bit, Bloomberg
Daniel Bystrom, former head of equity derivatives trading at MF Global Inc., and Neil Boyarsky plan to start Hawksfield Capital LLC, a New York-based equity volatility hedge fund, by the end of this month.
Hawksfield Capital will start with $10 million to $20 million of Bystrom and Boyarsky’s own money, as well as capital from friends and family, Bystrom said in a telephone interview.
SEC Gives Up On Web Schedules For Dodd-Frank Rules
Andrew Ackerman, The Wall Street Journal
It’s no secret that the Securities and Exchange Commission has failed to meet many statutory deadlines for an avalanche of regulations required by the 2010 Dodd-Frank financial regulatory overhaul.
Still, for nearly two years, the agency sorted its roughly 100 mandates into broad six-month periods, based on staff estimates of when the five-member agency would act. Though it failed to meet a July 2011 statutory deadline for the bulk of the Dodd-Frank rule mandates, it continued to include on its website the rough internal timetable.
Hedging stock market volatility
Larry Swedroe, CBS MoneyWatch
The most basic tenet of financial theory is that risk and expected return are related. One widely used measure of risk is volatility. It’s well known that unexpected stock market returns are negatively related to the unexpected change in the volatility of stock returns.
Greater than expected volatility leads to negative stock returns — investors demand a higher risk premium to compensate them for the greater risk.
Swap Pricey Shares for Cheap Options
Steven M. Sears, Barron’s
Sell high and buy low whenever you can. Now is one of those rare times when investors can sell many of the most actively traded stocks and exchange-traded funds at high prices and replace them with low-priced call options.
That tack locks in gains without giving up the chance to make even more money if the rally continues.
How Wicked is the Quadruple Witching?
Should you be scared of Friday’s expiration day?
Adam Warner, InvestorPlace
September options expire Friday, but it’s not just any expiration day, it’s a quadruple witching day. Quadruple witching days, which occur on the third Friday of March, June, September and December, see the simultaneous expiration of stock options, index options, index futures and single stock futures.
The expiration of single stock futures is why triple witching became quadruple witching, and this just makes the day seem all the more terrifying. But the truth is neither is cause for concern.
7 Reasons Not to Fear a Quadruple Witching
Answers to common questions about this special expiration day
Adam Warner, InvestorPlace
Options expiration is upon us, but it’s not just any old expiration day, it’s a quadruple witching.
Now those words might be enough to strike fear in the feint of heart, but that fear is really just a lack of understanding. A quadruple witching expiration is nothing to be afraid of. And to prove it, I’ll answer some common questions about this witch of a day.