Volatility May Be the World’s Only Undervalued Asset Class
Doug Kass – RealClearMarkets
I have argued that risk is underpriced because in large measure of the structural changes in the markets and participants positioning. Risk is an ever-present condition that cannot be eliminated, though it can be shifted through time and redistributed in form.
Sometimes You Beat the Bear. Lately, the Bear Beats You.
Stephen Gandel – Bloomberg
Investors have spent at least $2.6 billion this year on funds that are supposed to protect their portfolios in a market crash. Instead, those funds, rather than insuring their assets, have lost nearly $2.8 billion, according to data from Bloomberg Intelligence.
****SD: I feel like this article is framed incorrectly. If you’re going to use the insurance analogy, then stick with it. If the flood didn’t materialize, was the insurance a waste? It is very hard to determine motive when it comes to these instruments as ProShares’ Rich Ledee mentioned at a Cboe panel about VIX futures last week. Some action is purely speculative, some is intraday hedging and some is actually buy-and-hold moves by institutions that know what they’re getting into. Then there’s all the short interest. It is an oversimplification of a complex suite of products. Moreover, the article doesn’t mention why these funds, by virtue of using VIX futures, degrade over time, while harping on their “poor performance.” They’re acting the way they’re supposed to. What about “beating the bear” with inverse volatility? XIV has been a standout and the inverse side of the puzzle isn’t mentioned here either. See Matt Moran’s story two below for more on the panel I referenced.
The market is acting like risk no longer exists, Bank of America says
Fred Imbert – CNBC
As stocks have climbed to record levels this year, investors are neglecting one very important aspect of financial markets, according to analysts at Bank of America Merrill Lynch.
****SD: If risk rears its head in the forest and no one’s there to be fearful, is it still scary?
Chicago Panel Discusses Current Dynamics of the VIX Market
Matt Moran – Cboe
Over the past year a number of media stories have noted that the VIX Index appears to be somewhat “low” in light of worldwide geopolitical tensions. At a conference I heard Professor Richard Thaler opine that the “low” level of the VIX Index is one of the biggest financial mysteries of our time. Earlier in 2017 the minutes of a meeting of the Federal Reserve Board “expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty …”
How an Analyst Thinks Bitcoin’s Volatility Is Predictable
Steven Russolillo – WSJ
J.C. Parets, founder of Eagle Bay Capital and author of the All Star Charts blog, reckons the Fibonacci sequence is the key to the cryptocurrency’s twists and turns.
Weekly Realized Volatility Rankings
Robert Krause – LinkedIn
****SD: According to Krause’s RealVol indices, livestock, cocoa and OJ are the assets with higher than average volatility.
Why Has Stock Market Volatility Been So Low in 2017?
Victor Xing – HuffPost
Put it simply, with policy-induced excess liquidity permeating financial markets, risk premium and volatility of various asset classes are consistently suppressed by “yield-seeking” investors.
Exchanges and Clearing
Nasdaq Reports Third Quarter 2017 Results; Delivers Strong Profitability And Income Growth
Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the third quarter of 2017. Third quarter 2017 net revenues were $607 million, up $22 million or 4% from $585 million in the prior year period. The third quarter increase in net revenues included a $15 million, or 3%, increase due to organic growth and a $7 million favorable impact due to changes in foreign exchange rates.
Big Bank Turns to Nasdaq for Help Running Its Currency Trading
Annie Massa – Bloomberg
Nasdaq Inc. won its first deal to help power a bank’s currency trading, its latest attempt to branch out from its original business of running a famous stock exchange.
Nasdaq didn’t identify the new customer beyond calling it a “Tier 1 bank,” according to a statement Wednesday. The bank will use Nasdaq’s matching technology, the software that pairs up buyers and sellers.
Intercontinental Exchange Announces Strategic Stake in Euroclear
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced it has acquired a 4.7% stake in Euroclear for EUR 275 million. ICE anticipates having one representative join the Board of Euroclear. Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.
****SD: ICE also announced it would acquire Virtu’s BondPoint. This comes on the heels of its completed acquisition of BAML’s Global Research Index Platform. Starting to make sense why ICE was named to the Fortune Future 50, eh? Of course, it’s not like ICE acquiring a business is anything new.
SGX reports 1Q FY2018 net profit of S$91 million
Singapore Exchange (SGX) today reported 1Q FY2018 net profit of S$90.7 million (S$83.1 million), on the back of revenues of S$204.5 million (S$190.8 million). Operating profit rose to S$106.0 million (S$97.2 million), while earnings per share increased to 8.5 cents (7.8 cents). The Board of Directors has declared an interim dividend of 5 cents (5 cents) per share, payable on 9 November 2017.
Top investors want Deutsche Börse chief to resign
Olaf Storbeck in Frankfurt – Financial Times
Three big investors in Deutsche Börse want chief executive Carsten Kengeter to resign after a court in Frankfurt blocked his efforts to settle a criminal insider-trading investigation.
The shareholders, who between them control more than 6 per cent of the exchange group’s share capital, told the Financial Times that the court’s rejection on Monday of a deal that would have seen him pay EUR500,000 and avoid charges had fatally undermined the CEO.
LSE’s clearing boss eyes New York amid Brexit row
Samuel Agini – Financial News
The new chief executive of LCH capped his first week on the job by warning that Brexit, and the EU’s ensuing efforts to seize business from the City, could force the London Stock Exchange Group’s majority-owned clearing house to shift all or part of its operations to the US.
CurveGlobal plans futures on Libor successor
Helen Bartholomew – Reuters
CurveGlobal, the London Stock Exchange Group’s fixed income derivatives platform, plans to launch futures contracts referencing the Sterling Overnight Index Average, a Bank of England-administered unsecured lending rate that has been selected as the preferred Libor replacement for sterling financial contracts.
****SD: But what about the options?
Overstock.com to launch massive ICO
E-commerce veteran Overstock.com is planning to sell up to 500 million digital tokens via an initial coin offering that will launch next month, CEO Patrick Byrne announced today at the Money 20/20 conference in Las Vegas.
Regulation & Enforcement
EU scraps its answer to U.S. Volcker Rule for banks
The EU has scrapped a draft law that could have forced the bloc’s biggest banks to split up in order to reduce the risk of them being “too big to fail”, in a rare move that will cheer major trading firms.
FIA’s Puleston Jones speaks at UK House of Lords hearing
FIA’s Head of Europe, Simon Puleston Jones today spoke alongside LCH Group CEO Daniel Maguire at a hearing of the UK Parliament’s House of Lords EU Financial Affairs Sub-Committee.
Horizon Software Joins The QuantHouse qh API Ecosystem For End-To-End Performance And Global Reach
QuantHouse, the independent global leader of end-to-end high performance market data and trading API based technologies, today announced that Horizon Software, the leading provider of electronic trading solutions and algorithmic technology, has joined the qh API Ecosystem to benefit from global reach and end-to-end performance.
Hedging Your Portfolio to Protect Your Profits
Steven Sears – Barron’s
Monkeys throwing darts at a list of stocks can often outperform professional stockpickers, but knowing what to do with low volatility is much more nuanced.
That fact is easy to forget because on almost any day of the week, at practically every hour, someone is chirping about the CBOE Volatility Index’s unusually low level as they draft some magnum opus about investor complacency.
What are my options for protection?
Gary Delany – TradingFloor.com
In this short refresher we revisit some of the options strategies investors may consider when seeking protection from adverse market moves.
Exchange-listed options can be used in a variety of ways. Investors often use options to construct a defined risk strategy; to put less capital at risk versus buying the underlying asset; harnessing leverage; and to use options as protection against adverse market moves.
Modern Portfolio Theory or Volatility Index (VIX)?
Dan Bosscher – Livewire Markets
Modern portfolio theory, a hypothesis from the 1950’s (Markowitz) has been the traditional strategy for protecting portfolios from drawdown. Investors are increasingly asking whether this is still the best way to build a resilient portfolio. The traditional view is that diversification should be enough to protect us from volatility. But does it really work?
Inverse Volatility Traders Are Cashing Out
Bernie Schaeffer – Schaeffer’s Investment Research
One of the notable constants in the stock market’s post-election march to new highs has been the prolonged hibernation of the CBOE Volatility Index (VIX), with scores of seasoned volatility pros having prematurely called for an end to the “low VIX regime” over this period. But as the VIX stubbornly refuses, for now, to revert to anything resembling its historical mean, 2017 has continued to be a banner year for inverse volatility trackers, including the ProShares Short VIX Short-Term Futures ETF (SVXY).
How to protect against a vulnerable stock market’s ‘fragility event’
Joe Ciolli – Business Insider
At this point, anyone following the stock market knows that price swings are non-existent.
The CBOE Volatility Index (VIX) is locked near record low levels. The benchmark S&P 500 hasn’t seen a 3% pullback in 242 days and counting, the longest such streak in history.
So what should investors do? Bank of America Merrill Lynch thinks it’s time to prepare for an inevitable shock — or as it describes it, an “overdue fragility event.”
Market Volatility Bulletin: VIX Joins The S&P In A Push Higher
Spot VIX had the chance to fall on what was a decent day for stocks, and passed on the opporunity: what gives?
With So Few Doing So Much for Dow, Breadth Is a Bust
Helene Meisler – TheStreet
CNBC’s anchors and guests are not known for uttering a bearish word unless the market is actually collapsing, but they commented several times on Tuesday that the move in the Dow Jones Industrial Average was mostly “just two stocks.”
The Bond Market’s Moment of Truth Is Now
Brian Chappatta – Bloomberg
Ten-year yield closes above key mark for first time since May; Breakthrough has traders eyeing 2.5% and 2.6% levels
European Central Bank divided over wisdom of declaring end to QE
Claire Jones – Financial Times
The European Central Bank is gearing up for its most important meeting of the year, as senior officials gather to decide the fate of the EUR2.1tn asset purchase scheme that many credit with breathing life into the eurozone recovery.
At issue is whether the ECB will declare this week that the economy has recovered sufficiently for quantitative easing to end next year — a pronouncement that would reverberate in foreign exchange markets and could shape interest rate expectations.