With no government in place its hard to see how the Greeks can do anything, much less exit the Euro, but at least the Eurozone leaders appear to be moving past denial, shifting into anger. A few links:
- Head of European Central Bank says: “…unsustainable unless further steps are undertaken“
- Goldman Prepares for Worst-Case Outcome in Europe “…examining all euro-denominated contracts“
One idea floating around, a European-wide deposit guarantee mechanism, does have possibilities. The Eurozone countries already have deposit insurance similar to the USA’s $250K FDIC protection , but if your country exits the Euro and transfoms your Euros into a new local currency the accompanying devaluation will savage any “insured” assets you have. I don’t see how this could work if the insurance made up devaluation losses, but if it kept the first 100K or so Euros in your account in Euros regardless of what country the deposits were located then it might work.
I don’t know what percentage of deposits in shaky Eurozone banks are 100K Euro or less, but I suspect most large deposits have already made their way to safer countries. Over 80 billion Euros have exited the PIIGS in the last year and a half. Without a confidence booster we will see plain old bank failures instead something potentially constructive like a Euro exit.
New VIX Futures Term Structure Charting Tool
The chart below was taken from a new website that Eli at VIX Central has put together that offers near real-time VIX volatility futures term structure charts, plus the ability to generate historical term structure charts for any date from May 2007 forward. I recommend you check it out.
In spite of on-going Eurozone troubles VIX futures remain in contango. The chart shows the term structure at the 31-May close.
Volatility Futures on the Nasdaq 100 start trading
The CBOE started trading VXN volatility futures this week. The Volatility Futures & Options blog details the 6 distinct CBOE futures volatility products that are now trading. If you haven’t been paying attention the 4 besides VIX and VXN are GVZ (gold), OVX (oil), VXEEM (emerging markets), and VXEWZ (Brazil).
More SPX options choices—shades of things to come?
Until now, all weekly SPX options have listed on Thursday the week before they expired. Starting May 31st the CBOE is extending the listing period of its Weeklys SPX options to over a month. Mark Sebastion from Option Pit reports that the CBOE did this in response to pressure from the CME, and he predicts that this will address some ongoing problems with the Weeklys. He also predicts that that the longer listing time will eventually spread to all of the equity weekly options. I think most traders of CBOE Weeklys options are attracted to the lower premiums and the fast premium decay near expiration so I don’t see this as a big deal. However the longer listing period might be useful for setting up things like earnings plays or dividend capture schemes.
Mark also notes that this change will probably divert additional volume from the monthly SPX options—the ones that the VIX is calculated from. I think a lot of people are concerned about this because of the rising option activity outside of the standard SPX options (e.g., SPY, SPX weeklies) . The SPX option family is a bit tweaky (e.g., the monthly options expire Friday morning, and the options chains are non-trivial) so check this out if you are thinking of trading them.
Rising Assets in Dynamic Volatility ETNs
Quietly, with very little fanfare Barclays’ two dynamically allocated volatility funds, XVZ, and VQT are becoming a significant part of the volatility ETF universe. XVZ has $264M in assets under management (30-May-12) and VQT has $385M —compared to $205M for UVXY, $279M for XIV, $512M for TVIX, and $1.7B for VXX. Given the general market confusion on these “simpler” funds I’m skeptical that many people will ever understand these dynamic funds, but as they build up a track record—and demonstrate that they don’t require hair trigger timing to capture volatility spikes I predict they will become very popular.
Monday, June 11th, 2012 | Vance Harwood