Volatility futures may be subdued because of all the volatility ETPs

Volatility futures may be subdued because of all the volatility ETPs
Cboe Volatility Index futures have been quiet recently as U.S. stocks reached new highs.
DEC 02, 2019
By  Bloomberg
Exchange-traded products are taking up a bigger chunk of Cboe Volatility Index futures trading than they have in about seven years, and that could be depressing the gauge, according to Nomura Securities International Inc. When VIX-linked ETPs roll to the next month, they sell front-month futures on the volatility gauge to buy second-month ones. And when that activity becomes a larger portion of overall futures trading, it could have a bigger influence on the level of the index itself. [Recommended video: How will the markets react to news about the White House?]​ The current impact of ETP rebalancing on the front VIX future is about 20% of daily volume on the index's contracts, "just smashing the VIX future," according to Nomura Cross-Asset Strategist Charlie McElligott. "In a market structure where volatility is your exposure and/or leverage toggle, this creates that second-order signal to lever up/increase exposure to the asset for many volatility control, target volatility, Commodity Trading Advisers trend and risk-parity products," Mr. McElligott wrote in an email last Wednesday. [More: SEC commissioner warns about use of leverage in ETFs] The VIX has been quiet recently — it hasn't closed above 15 in seven weeks — as American stocks reach new highs amid optimism on U.S.-China trade talks, global economic health and support from dovish central banks. "One final booster shot to this is that the ETN monthly rebalancing via the futures roll also creates an enormous steepening between the first and second contract, which is then a signal for systematic roll-down strategies to also pile on and short the front end of the VIX futures curve," Mr. McElligott said. The result: "Underlying equities slingshot higher." [More: New ETF offers a way to bet on credit volatility]

Latest News

Farther debuts AI investment proposal tool for advisors to win clients
Farther debuts AI investment proposal tool for advisors to win clients

"Im glad to see that from a regulatory perspective, we're going to get the ability to show we're responsible [...] we'll have a little bit more freedom to innovate," Farther co-founder Brad Genser told InvestmentNews.

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

Are you optimally efficient?
Are you optimally efficient?

Taking a systematic approach to three key practice areas can help advisors gain confidence, get back time, and increase their opportunities.

Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida
Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida

Meanwhile, Osaic lures a high-net-worth advisor from Commonwealth in the Pacific Northwest.

Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B
Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B

The deals, which include its first stake in Ohio, push the national women-led firm up to $47 billion in assets.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.