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Options on ETFs Warning; Short-vol Funds; Oil Options

Observations & Insight

VIX Index Hits All-Time Daily Closing Low Value of 9.14
Matt Moran – VIX Views
On November 3 the Cboe Volatility Index (VIX) closed at 9.14, an all-time record low for both a daily and weekly closing value for the index.

Lead Stories

If You’re Trading Options on ETFs, Read This First
Simon Constable – WSJ
More individual investors are trading options on exchange-traded funds. The trend worries some financial experts, who say inexperienced traders may not fully understand the risks.
Interest in ETF options comes amid growth in the number of ETFs and the amount of money invested in them. According to Options Clearing Corp., a clearinghouse that guarantees trades, ETF options accounted for 41% of the total volume of all options traded in 2016, up from 35% in 2014.

Short-Volatility Funds Are Being Flooded With Cash
Dani Burger – Bloomberg
Assets of inverse volatility ETFs rise to $2.4 billion ; Volatility funds now bigger than those tracking many countries
Exchange-trade products betting that volatility will sink lower have never been more popular.

Oil options signal Brent bulls are not having it all their own way
Amanda Cooper – Reuters
Brent crude options show the market still has to win over the die-hard sceptics, even as investors are betting more heavily than ever before that the price break above $60 a barrel might be the start of a bigger move higher

The future of risk in 10 interviews: volatility, liquidity and tech F
Duncan Wood –
Volatility, liquidity, new technologies, Libor reform, China, operational risk … and a bit more volatility. These are the topics that come up repeatedly when you ask senior traders, risk managers and regulators about their hopes and fears.

****SD: This appears to be an non-paywalled story.

Top Volatility ETF’s Unique Approach
Cinthia Murphy –
VMIN is a unique fund, achieving that inverse exposure by shortening the term of the VIX futures it holds—it owns VIX futures with less than 30 days to expiration. By comparison, other short-term volatility products often rely on monthly contracts. And VMIN is actively managed. Greg King, founder of REX ETFs, and former co-founder of VelocityShares, gives us a run-down on how VMIN works, and what investors can expect from volatility investing.

Weekend Review of VIX Futures and Options – 10/30/2017
Russell Rhoads – Cboe Blog
VIX finished the week on an all-time closing low level. However, despite the dramatic drop last week, only the November VIX future was lower while the rest of the contracts were higher for the week. It may be that traders are expecting the low volatility environment to be coming to an end.

****SD: Other recaps: Weekend Review of Russell 2000 Options and Volatility and Review of Volatility Indexes and ETPs.

Art, Options and Pre-Defaults
Matt Levine – Bloomberg
…On Wednesday, Bill Ackman cut his losses on his short bet against Herbalife Ltd., closing his straight short position and replacing it with put options. The conventional thing to say about this is that it limits Ackman’s downside if Herbalife continues to move against him.

****SD: Levine providing some context on Ackman’s shift to a fully options-based position in Herbalife.

Exchanges and Clearing

Activist TCI calls on LSE chairman to step down, says Rolet being forced out
Reuters Staff
UK activist investor TCI Fund Management has called on London Stock Exchange Group’s (LSE.L) Chairman Donald Brydon to step down, saying that Chief Executive Xavier Rolet was being forced out of the company.

****SD: Other LSE news – LSE ‘out of the race’ to buy Irish Stock Exchange

Shanghai Working on London Stock Connect
Shanghai and London are working on mutual stock-market access, an arrangement that will be similar to the stock-connect programs between Hong Kong and the Chinese mainland’s two A-share markets, Shanghai Stock Exchange Chairman Wu Qing said.

Regulation & Enforcement

Opinion/Commentary of Chairman J. Christopher Giancarlo
There’s been much worry about the impact of Brexit on British and European banking and capital markets. It may seem that U.S. markets are protected from that uncertainty, but they aren’t. If the European Union mishandles Britain’s exit, the consequences for U.S. businesses and consumers could be serious.

****SD: Some strong words from Chairman Giancarlo.


Buy-Side Technology Awards 2017: All the Winners
Victor Anderson – WatersTechnology
The winners of the 11th annual Buy-Side Technology Awards were announced at a sit-down luncheon at the May Fair Hotel in London on November 3. Like last year’s awards, this year featured a total of 29 different winners across the 35 categories on offer.


Double Calendar Options Trades, Explained
T.J. Neil, TradeWise Advisors – The Ticker Tape
Are you an options trader looking for a strategy designed for a lower-volatility environment where the underlying price action gravitates toward either of two different strike prices? The double calendar could fit the bill. A double calendar has a wider breakeven range, and therefore a higher probability of making a profit, than an individual calendar. And yes, the risk/reward graph looks kinda like a two-peaked suspension bridge (figure 1, below).

Straddles and Strangles Part 1
Highly Evolved Vol
This is essentially a re-post of an entry from the (now dead) FactorWave blog. It is relevant again because it is the first part of what will be a series on strike and strategy selection.
One of the things that make options great is that there are many ways to express an opinion. But this is also one of the things that make options tricky. Just because there are many ways to express an opinion doesn’t mean they will all be equally good. Some will be a lot worse than others.


Agenda Set for 3rd Annual Cboe RMC Asia – Dec 5
Russell Rhoads – Cboe
Every job has the things you ‘have to do’ and those that you ‘get to do’. I know I have worn this line out, but I cannot think of a better way to describe what the Cboe Risk Management Conferences mean to me. The schedule for this year’s Asian version of RMC was posted on Friday and as always the lineup is very strong with respect to both the quality of speakers as well as the topics that will be covered in Hong Kong on December 5th and 6th.


Saudi purge takes kingdom into unpredictable new era
John Kemp – Reuters
The wave of arrests and ministerial changes in Saudi Arabia at the weekend has fundamentally transformed the structure of the state as it has existed since the 1960s.

****SD: Being a billionaire didn’t protect Prince Alwaleed. And multiple senior officials and princes have died in the crackdown – a group in a helicopter crash and now another in unclear circumstances during an “attempted arrest.”

Bull Market Tests Nerves On Wall St.
Landon Thomas Jr., NY Times – CNBC
One day in September, investors with fading summer tans mingled with their brokers over a three-course lunch at Cipriani in Lower Manhattan. Stocks were soaring and they swapped market tips and touted apps that allowed them to buy Bitcoin on the golf course.

A Survival Guide For The Coming Hedge Fund War
Price Action Lab Blog
Hedge funds and CTAs have struggled in recent years due to rapid decline in the supply of dumb money. When the current transition period ends and new strategies are fully deployed, only those who are prepared for the coming war will survive.

Carriers’ pursuit of co-loaders adds to rate volatility
Peter Tirschwell – JOC (Soft Paywall)
The willingness of container carriers to sell capacity to resellers who openly distribute rates to the market is fueling the rate volatility that threatens direct contracting relationships between the carriers and shippers.

****SD: A dynamic I was unaware contributed to rate volatility.

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Graduate of University of Minnesota School of Journalism and Mass Communication