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Month: September 2015

It’s volatile all the way down…

It’s volatile all the way down…


The surge in volatility trading strategies and volatility-linked products is impacting volatility itself. I was tempted to break out the tail wagging the dog GIF again for this one, but I’ll keep it simple. Read the below, then read this, and this, and this, and so on.

Market volatility has changed immensely

On Aug. 24, as global markets fell precipitously, one thing was shooting up.

The Chicago Board Options Exchange’s Volatility Index, the VIX, briefly jumped to a level not seen since the depths of the financial crisis. Behind the scenes, however, its esoteric cousin, the VVIX, did one better.

For years, the VIX has been Wall Street’s go-to measure for expected stock market volatility. Derived from the price of options on the S&P 500-stock index, the volatility index has evolved into an asset class of its own and now acts as a benchmark for a host of futures, derivatives, and exchange-traded products to be enjoyed by both big, professional fund managers and mom and pop retail investors.

The dramatic events of last month underscore the degree to which the explosion in the popularity of volatility trading is now feeding on itself, creating booms and busts in implied volatility. Even as the VIX reached a post-crisis intraday high, the VVIX, which looks at the price of options on the VIX to gauge the implied volatility of the index itself, easily surpassed the levels it reached in 2008.

Analysts, investors, and traders point to two market developments that have arguably increased volatility in the world’s most famous volatility index, beginning with the rise of systematic strategies.

It’s a week after this was published and the Vix has since been collapsing after shooting up to that August 24 high.

Bank deposits, again

Bank deposits, again

It’s time to start thinking about bank deposits again.

And it’s always time to think about the interplay between monetary policy and financial regulation.

A new research piece by Zoltan Pozsar attempts to estimate the amount of deposits that could flow out of U.S. banks thanks to an interest rate rise by the Federal Reserve and the mechanics of the central bank’s new overnight reverse repo (RRP) programme.  At the same time, new Basel banking rules have pushed banks to hold big buffers of high-quality liquid assets (HQLA) to cover potential outflows. As I put it in the piece: “Two grand experiments, one conducted in the technical backwaters of monetary policy and the other operating in the realm of new banking rules, are about to collide. It bears watching.”

Go ‘watch’ the full article over here.