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VIX creator Bob Whaley: investors don’t grasp Wall Street ‘fear gauge’; Swedroe: Embracing The Downside

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VIX creator Bob Whaley: investors don’t grasp Wall Street ‘fear gauge’
Graham Rapier – Business Insider
Business Insider recently spoke with Bob Whaley, the Vanderbilt University finance professor who created the wildly popular index. Whaley, 64, said he had been pleasantly surprised by the attention his index had received since its launch almost three decades ago. Here’s what he had to say:

Swedroe: Embracing The Downside
Larry Swedroe –
It has long been known that investors have asymmetric preferences when it comes to bearing downside risk versus participating in the upside.
The term “loss aversion” refers to an investor’s tendency to prefer avoiding losses more strongly than acquiring gains. Most studies suggest a loss is twice as powerful, psychologically, as an equal-sized gain. This aversion helps explain why the equity risk premium has been so large; the risk of owning equities is highly correlated with the risks of the economic cycle.

****SD: A look into the psychology behind options use.

Options market seeks cover, and exposure, as Hurricane Irma nears
Saqib Iqbal Ahmed – Reuters
Equity option traders are seeking ways to profit from and protect their investments against expected damage caused by Hurricane Irma, one of the most powerful Atlantic storms in a century as it closes in on Florida.
Irma was about 405 miles (655 km) southeast of Miami, the National Hurricane Center (NHC) said in an advisory at 11 a.m EDT (1500 GMT) on Friday.

****SD: A perspective from Friday afternoon. Obviously, markets are constantly adjusting to hurricane news – now Irma is classified as a tropical storm (and indices are up).

Night Terrors
Euan Sinclair, Talton Capital Management – Highly Evolved Vol Blog
Following on from my recent posts about trading volatility over weekends, I’m now going to briefly look at trading options overnight.
Option traders have always complained when they were too long options overnight, expecting to usually lose money on overnight longs.

‘Nonexistent’ stock-market euphoria means start of long decline unlikely: Goldman
Ryan Vlastelica – MarketWatch
Investors worried the U.S. stock market could be poised for a turn lower should rest easy: nearly everyone feels the same way, which is itself a factor that favors markets.
That paradoxical-sounding view comes courtesy Goldman Sachs, which argued that cautious investors were one of two reasons that “an imminent correction is unlikely” in U.S. markets.

****SD: FT’s take — Goldman to investors: Stop freaking out, a US stock correction is still unlikely

New Developments in Options and Volatility Discussion at CBOE RMC Europe
Russell Rhoads – CBOE
The 6th Annual European version of CBOE’s Risk Management Conference kicked off with a presentation from Bill Speth, Vice President of Research and Product Development at CBOE and Tim Edwards, PhD, Senior Director of Index Investment Strategy for S&P Dow Jones Indices.
Tim kicked things off breaking down VIX in several ways and explaining what VIX tells us. He referred to VIX as a crowd sourced projection of market volatility. He noted that VIX is mean reverting and also stated that over the long term the overestimation of VIX is about four points.

Bears target ways to bet on cryptocurrency mania imploding
Robin Wigglesworth – Financial Times
At the peak of the South Sea Bubble three centuries ago, a wag famously poked fun at the craze by issuing a prospectus for “a company for carrying out an undertaking of great advantage, but nobody to know what it is”. Cryptocurrency mania has now arguably reached the same stage.
This summer an unknown software developer launched what he termed the “Useless Ethereum Token”, an “initial coin offering” of a variant of a cryptocurrency whose popularity rivals that of the more famous bitcoin.
But this was the “world’s first 100 percent honest” ICO, he promised, and was admirably transparent about its purpose.

Will Bitcoin Shorting Stabilize Market?
Darryn Pollock – Coin Telegraph
As is always the case in markets and investment, not everyone is looking to go with the grain. There is an emerging bear market looking to bet on a Bitcoin bust in the hopes of shorting the market, but this could be a positive move for the digital currency.
There are alternatives to simply buying into Bitcoin, such as banking on derivatives, and alternatives in order to short the market, but soon people will be able to bank on it all going bust.

Stock market volatility to grow ahead of ‘quadruple witching’
Yonhap via Korea Herald
South Korea’s stock market volatility is expected to grow early this week ahead of the so-called quadruple witching day that comes on top of escalating geopolitical tensions here, analysts said Monday.

Exchanges and Clearing

After a tepid start, India’s first international stock exchange is getting into its stride
Nupur Anand – Quartz
Being India’s first global stock exchange is an uphill task but it is grinding on.
Barely months after its January 2017 launch, the Gandhinagar-based India International Exchange (India INX) is struggling with tepid turnover and poor broker registration.
However, with a trade speed of only four microseconds (the world’s fastest) and trading of up to 22 hours a day, it is confident of succeeding in the long run.

China to shut bitcoin exchanges
Chao Deng – Financial News
Chinese authorities plan to shut down domestic bitcoin exchanges, delivering a final blow to a once-thriving industry of commercial trading for virtual currencies, which took off inside the mainland four years ago.
The country’s central bank has led a draft of instructions that would ban Chinese platforms from providing virtual currency trading services, according to people familiar with the matter. The move comes after months of scrutiny by Beijing, including a ban last week in China on initial coin offerings, a kind of fundraising via virtual currencies.

Spot currency trading on Thomson Reuters platforms dips in August
Jemima Kelly – Reuters
Average daily spot volumes on currency trading platforms run by Thomson Reuters dipped to an eight-month low of $82 billion in August, though that was partially offset by strong trading volumes in derivatives.

Regulation & Enforcement

Derivatives: Soon, your mutual funds, PMS may get to invest in commodity derivatives
Ram Sahgal – Economic Times
After permitting commodity exchanges to launch options trading and allowing category III alternate investment funds to participate in trading, the market regulator could soon allow entry of mutual funds and portfolio management services into the 14-year old commodity derivatives market (CDM), two persons aware of the development confirmed to ET. The approval could come in the next two-three months.

SEBI to shortly approve options trading in guar seed
Tarun Sharma – Money Control
The Securities and Exchange Board of India is expected to approve options trading in guar seed, this week, sources told Moneycontrol. That would make it the second commodity, after gold, in which options contracts can be traded. Trading in guar seed options is expected to start in the last week of October.

Former financial adviser banned for five years
Malavika Santhebennur – Money Management
The Australian Securities and Investments Commission (ASIC) has banned a former financial adviser of Wilson Advisory and Stockbroking Limited (Wilsons) from providing financial services for five years for misleading conduct.


Betting Long on Volatility Is Still a Sucker’s Game
Robert Lang – TheStreet
Traders have been trying to make a big score buying volatility when it is low and looking for the ultimate move to the upside, dreaming of a 2008/09-type move when volatility took off like a rocket ship into space.
In 2008, the volatility index VIX hit unprecedented levels, well over 90 as it appeared the world was coming to an end. That bet failed, and the play on higher volatility since has mostly been a wrong way play, as big spikes in volatility have been short-lived. We saw a couple of these moves in August, and volatility sellers once again took advantage.

XIV Is Bending But Not Yet Broken
Mike Golembesky – Nasdaq
Last week the XIV moved up into the 83.07-93.56 resistance zone before turning back lower hitting a low of 76.07 on Tuesday, September 5th. Since this low, we have seen the XIV move back higher in what is so far counting best as a corrective wave structure. This move higher has held the 76.4 retrace of the move down off of the September 1st high. We have, however, yet to see further follow through to the downside, thus not yet giving us confirmation that we have indeed begun the next swing lower on the XIV.

Bets on euro strength against dollar notch six-year high
Adam Samson – Financial Times
Euro bulls, who have a pretty good year so far, are positioning for further gains, with long bets sitting at their highest level in six years.


Why Is There So Much Attorney Hiring Volatility At The Major Am Law 100 Firms?
Michael Allen, Lateral Link – Above the Law
In the prior rolling 12 months, we have seen over 7,000 attorney GAINS at the major Am Law 100 firms and over 12,000 attorney LOSSES at the major Am Law 100 firms. Some folks outside the legal industry may find this number hard to believe given how sticky attorneys appear in their jobs.

****SD: Varied applications of volatility measurements – this article makes a VIX comparison.

Citigroup Sees Third-Quarter Trading Revenue Declining 15%
Dakin Campbell – Bloomberg
Trading revenue declines due to subdued volatility, CFO says; CFO says net credit losses in cards business will climb
Citigroup Inc.’s trading revenue is on pace to drop 15 percent in the third quarter from a year earlier as volatility remains “somewhat subdued,” Chief Financial Officer John Gerspach said.

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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.