Or, turning the leveraged into fondue. Hat-tip to Scott Barber of Reuters graphics:
Scheduled for Tuesday actually:
FT Alphaville just had a very interesting conversation with Ari Bergmann, managing principal at Penso Advisors, with respect to what’s been happening in the world of volatility hedging this year.
And specifically how things have changed since July. Read more
High-frequency traders made a record profit of $60m on August 8, during a 635-point Dow plunge and the NYSE’s fourth-busiest ever trading day, the WSJ reports. If this level of profit could be repeated across 2011, the figure would be $15bn, compared to $7.2bn made by HFT firms in 2009, according to Tabb data. While high volumes led to rick picking for profit, traders said that statistical arbitrage funds and HFT firms specialising in market-making had done especially well. A pair of funds run by Renaissance Technologies have racked up $200m of gains in August, leaving them up 5.9 per cent for the month so far. Read more
August’s extreme stock trading volatility will still not be enough to turn around declining revenues on Wall Street, the WSJ reports. Despite the past week having seen some of the busiest trading days in history, banks are unlikely to take enough commission revenue from trades to make up for declines in the inventories of stocks they hold. Similarly, bond trades have increased but new underwriting deals remain absent from markets. Merger and stock underwriting volumes are also down sharply on the year. Underwriting fees on public offerings for companies bailed out in the crisis are also falling as the government haggles with banks, Reuters reports. Read more
In the natural world a magnitude 9.0 earthquake equals widespread devastation.
If you equate standard deviations with the Richter scale, it looks like in 2008 we experienced something in the region of a 9.2 event. That ties with the idea of widespread devastation.
Marginally more tasteful than a hooker’s drawers anyway… (H/T Michael Roston) Read more
Wednesday 10 August, New York. Tabloid discovers volatility. Read more
The financial turmoil triggered by Europe’s debt crisis, the US credit rating downgrade and increasing concerns over global growth are causing companies to cancel or put off planned initial public offerings, reports the FT. “The primary markets are shut for now,” said Craig Coben, European head of equity capital markets at Bank of America Merrill Lynch. “This is not a good time to launch IPOs.” There have been about $134bn of IPOs so far this year but volatile equity markets will now make it difficult to beat last year’s $281bn total. Read more
As the Vix and More blog duly noted last Friday, not only has spot Vix been spiking in its own right (last print seen around the 40 mark on Monday), the entire Vix term structure has flipped into backwardation over the last 10 trading days:
The Swiss franc.
It has indeed often been cited as being as good as gold. Read more
Macro Risk Advisors, headed by Dean Curnutt, are specialists in derivatives strategy. One of their chief occupations is thus evaluating risk and volatility.
Given that, it’s probably fair to say they’re in a good position to comment on matters “systemic risk” related. Read more
Here’s an interesting observation from a new paper published by the International Journal of Business and Finance (and flagged up by the CXO Advisory Group).
It pertains to the pricing of ETF options, which it turns out are not a like-for-like substitute for index options in the underlying indices they track. Even though you might think they should be. Read more
A bit odd how everyone focuses only on whether or when Italian bond yields will rise 200bps. Isn’t the real problem why a 200bps move would send everything in Europe overboard in the first place?
It’s a single point of failure, no? Read more
Earlier on Monday — Italy’s financial regulator hits the shorts:
Some of the world’s largest hedge fund managers have been left nursing significant losses after two months of volatile markets, reports the FT. Paulson and Co.’s flagship Advantage Plus fund dropped 11.5 per cent in June, according to an investor. The $9bn fund is down 18.4 per cent so far this year. Even veterans of macro trading have been under pressure, with the MLM Macro fund dropping 9.2 per cent for June as at June 24. Hedge funds which sought pickings in the muni bond market fared better, the WSJ reports. Funds which bought up speculative “tobacco bonds” saw returns of more than 10 per cent. Read more
(*Please see below for response from Barclays.)
It was launched with a loud fanfare from Barclays about being an enhanced antidote to the decaying effect of the Vix future roll. Read more
Where “good” = yield from a nice Eonia trade.
Quite frankly, this looks to us like picking up pennies in front of a steamroller. Read more
Here’s an interesting observation from a recently released NBER paper: why are put options on the financial sector index cheaper than those on member banks?
Bryan Kelly of the University of Chicago Booth School of Business, Hanno Lustig of UCLA Anderson, and Stijn Van Nieuwerburgh of NYU Stern, make the following point: Read more
As FT Alphaville has written before, the volatility is out there.
You just have to look for it — and not by glancing at industry-standard, the CBOE Vix index. Read more
Ongoing Greek turmoil. The end of QE2. Slowing growth. An oversupply of credit. A US default.
The list of current developments to keep investors up at night could go on. Read more
When we first mentioned Bitcoin — the virtual currency — it was hovering at $8 against the US dollar.
Last week it reached $28. And we first mentioned Bitcoin last Monday — seven days ago. Read more
I dream of single-name volatility calculations on peripheral eurozone CDS…
Markit’s VolX indices do some of this already, of course. They track realised volatility for European and North American CDS markets using the standard CDX and iTraxx indices. But what they don’t really do is give you a country-by-country breakdown of historical (CDS) volatility for particular countries. Read more
Dylan Grice. Bless ‘im.
The Societe Generale strategist has managed to combine three of our favourite themes — China’s great central economy and big local government debt problems, financial repression and volatility. Read more
Encumbrance – along with collateral-shortage — is one of our favourite post-financial crisis terms.
A new paper from the Bank for International Settlement’s latest Quarterly Review deals with both in relation to central clearing, scheduled to cover all OTC derivatives by the end of next year. Read more
Investors are braced for renewed swings in prices of commodities such as oil, natural gas and orange juice after weather forecasters predicted a busy Atlantic hurricane season, the FT says. Colorado State University on Wednesday joined others including the official US National Oceanic and Atmospheric Administration, saying that the season, which began on June 1 and runs to the end of November, would see strong hurricane developments. Separetly, the WSJ reports that heightened volatility and higher commodities prices are boosting banks’ profits. A group of 10 large banks — including Goldman Sachs, Morgan Stanley, JPMorgan, Citigroup., Bank of America and Barclays — saw their commodities revenues increase by 55 per cent in the first quarter, according to research by Coalition. Read more
We ♥ this note from Bank of America Merrill Lynch’s Ruslan Bikbov and Priya Misra.
It’s on a subject dear to our own hearts here on FT Alphaville — the curious case of persistently low volatility and the idea that it might be masking systemic risk. It also weaves together a plethora of other themes — massive short volatility positions, search for yield, correlation, LTCM – we’ve touched on. Read more
With hedge funds going into the meedja sentiment business this is probably worth exploring:
Finance news articles mentioning ‘crisis’ are at a three-year low, say Société Générale’s cross-asset research team using a famed indicator: Read more
Perhaps some Deutsche Bank analysts have been into the absinthe.
From a DB research note out Monday: Read more