Opening Bell 25.05.2016

Your world at 9am

world.2016-05-25

Equities

Major
DAX(DEU) +2.18%
CAC(FRA) +2.46%
UKX(GBR) +1.35%
NKY(JPN) +1.80%
SPX(USA) +1.37%
MINTs
JCI(IDN) +0.72%
INMEX(MEX) +0.52%
NGSEINDX(NGA) +0.80%
XU030(TUR) +3.79%
BRICS
IBOV(BRA) +0.03%
SHCOMP(CHN) +0.29%
NIFTY(IND) +0.23%
INDEXCF(RUS) +0.84%
TOP40(ZAF) +1.07%

Commodities

Energy
Brent Crude Oil +1.17%
Heating Oil +1.14%
Natural Gas -0.20%
Ethanol +0.00%
RBOB Gasoline -0.49%
WTI Crude Oil +1.32%
Metals
Platinum +0.02%
Silver 5000oz +0.17%
Copper +0.00%
Gold 100oz +0.00%
Palladium -1.12%

Currencies

USDEUR:-0.10% USDJPY:+0.05%

MINTs
USDIDR(IDN) -0.04%
USDMXN(MEX) -0.21%
USDNGN(NGA) +0.00%
USDTRY(TUR) +0.00%
BRICS
USDBRL(BRA) -0.03%
USDCNY(CHN) +0.07%
USDINR(IND) +0.39%
USDRUB(RUS) -0.00%
USDZAR(ZAF) -0.08%
Agricultural
Corn +0.13%
Cotton -0.10%
Soybean Meal +1.00%
Wheat +0.43%
White Sugar +0.00%
Cocoa +0.00%
Lean Hogs +0.00%
Lumber +0.00%
Coffee (Robusta) +0.00%
Soybeans +0.55%
Cattle +0.00%
Coffee (Arabica) +0.00%
Feeder Cattle +0.00%
Orange Juice +0.00%
Sugar #11 +0.00%

Credit Indices

Index Change
Markit CDX EM -0.44%
Markit CDX NA HY +0.09%
Markit CDX NA IG -0.34%
Markit iTraxx Asia ex-Japan IG +1.08%
Markit iTraxx Australia +0.24%
Markit iTraxx Europe +0.23%
Markit iTraxx Europe Crossover +1.46%
Markit iTraxx Japan +0.27%
Markit MCDX (Municipal CDS) +0.00%
Out of 42 world ETFs listed in NYSE that we track, 23 are trading above their 10-day SMA and 15 are trading above their 50-day SMA. Also, there were 20 sigma events over the last 24 hours. Details here.

Must reads

Water is a “natural resource that belongs to the entire nation” and not to any private entity, the Bombay high court (HC) on Tuesday directed the government to requisition or take charge of all private wells and bore wells for as long as the state faces water shortage. (HT)

The Mauritius pact is likely to provide the much-needed push for fund managers to relocate to India. Or, just trade the SGX Nifty out of Singapore. (LiveMint)

Reserve Bank of India has raised concerns over one-third of ATMs being non-functional and warned the lenders of penal action if the compliance levels are not met. (NDTV)

Deloitte thinks online peer-to-peer lenders will not be significant players in terms of overall volume or share. They are, at best, a sustaining innovation, likely to be limited to serving profitable, underserved segments that are currently overlooked by incumbent banks. (BI)

Sweatshops no more! Adidas announced that it will start marketing its first series of sportshoes manufactured by robots in Germany from 2017. (GP)

Good luck!

Options Daily 25.05.2016

NIFTY Summary:

  1. Jun 7900 calls added 2,30,175 contracts.
  2. Jun 8300 calls shed 53,625.
  3. Jun 7200 puts added 1,70,475.
  4. Jun 7000 puts shed 80,700.

Our trend model indicates a SHORT on the NIFTY and SHORT on the BANKNIFTY.

MAY NIFTY OI

MAY NIFTY OI chart

MAY BANKNIFTY OI

MAY BANKNIFTY OI chart

JUN NIFTY OI

JUN NIFTY OI chart

JUN BANKNIFTY OI

JUN BANKNIFTY OI chart

MAY NIFTY Volatility

MAY NIFTY Volatility chart

MAY BANKNIFTY Volatility

MAY BANKNIFTY Volatility chart

JUN NIFTY Volatility

JUN NIFTY Volatility chart

JUN BANKNIFTY Volatility

JUN BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

VIX Density Plot

VIX kernel density plot

5-day forecast based on ARMA(4,2)+GARCH(1,1) model:

VIX 16.27 16.32 16.37 16.41 16.45
σ 0.74 0.81 0.86 0.90 0.92

Opening Bell 24.05.2016

Your world at 9am

world.2016-05-24

Equities

Major
DAX(DEU) -0.74%
CAC(FRA) -0.66%
UKX(GBR) -0.32%
NKY(JPN) -0.67%
SPX(USA) -0.21%
MINTs
JCI(IDN) -0.11%
INMEX(MEX) +0.23%
NGSEINDX(NGA) -0.42%
XU030(TUR) +0.65%
BRICS
IBOV(BRA) -0.79%
SHCOMP(CHN) -0.90%
NIFTY(IND) -0.24%
INDEXCF(RUS) -1.21%
TOP40(ZAF) +0.01%

Commodities

Energy
Brent Crude Oil -0.37%
Natural Gas +0.49%
RBOB Gasoline -0.03%
Ethanol +0.00%
Heating Oil -0.14%
WTI Crude Oil -0.27%
Metals
Copper +0.00%
Platinum -0.03%
Gold 100oz +0.00%
Palladium -0.43%
Silver 5000oz +0.00%

Currencies

USDEUR:+0.10% USDJPY:+0.16%

MINTs
USDIDR(IDN) +0.55%
USDMXN(MEX) +0.14%
USDNGN(NGA) -0.05%
USDTRY(TUR) +0.02%
BRICS
USDBRL(BRA) +1.46%
USDCNY(CHN) -0.03%
USDINR(IND) +0.07%
USDRUB(RUS) -0.45%
USDZAR(ZAF) +0.06%
Agricultural
Coffee (Robusta) +0.00%
Cotton -0.36%
Lumber +0.00%
Soybeans -0.61%
Sugar #11 +0.00%
Cattle +0.00%
Coffee (Arabica) +0.00%
Feeder Cattle +0.00%
Corn -0.50%
Lean Hogs +0.00%
Orange Juice +0.00%
Wheat -0.22%
Cocoa +0.00%
Soybean Meal -0.62%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM +0.00%
Markit CDX NA HY +0.00%
Markit CDX NA IG +0.00%
Markit iTraxx Asia ex-Japan IG +0.00%
Markit iTraxx Australia +0.00%
Markit iTraxx Europe +0.00%
Markit iTraxx Europe Crossover +0.00%
Markit iTraxx Japan +0.00%
Markit MCDX (Municipal CDS) +0.00%
Out of 42 world ETFs listed in NYSE that we track, 7 are trading above their 10-day SMA and 10 are trading above their 50-day SMA. Also, there were 9 sigma events over the last 24 hours. Details here.

Must reads

Megalomania much? Ramdev is lining up an online platform (chikitsalaya) for ayurvedic consultation and treatment. (TOI)

Apparently, the RBI put in a lot of “work” to give in-principle licenses to some payments bank and is pissed that they decided not to pour money down the drain. Sigh… (ET)

Apple CEO Tim Cook’s recent learning mission to India may open up new possibilities. (LiveMint)

WTF is happening to USDINR?
USDINRGSUST.2016-05-24

Australia’s biggest banks, among the most profitable in the world, might be headed for trouble. Rising bad debts, falling earnings and fears of a property-market downturn have triggered a record number of “shorts” on Australian banks. (WSJ)

Good luck!

Options Daily 24.05.2016

NIFTY Summary:

  1. Jun 8000 calls added 4,52,550 contracts.
  2. Jun 6000 calls shed 2,475.
  3. Jun 7500 puts added 3,29,925.
  4. Jun 7200 puts shed 9,000.

Our trend model indicates a SHORT on the NIFTY and SHORT on the BANKNIFTY.

MAY NIFTY OI

MAY NIFTY OI chart

MAY BANKNIFTY OI

MAY BANKNIFTY OI chart

JUN NIFTY OI

JUN NIFTY OI chart

JUN BANKNIFTY OI

JUN BANKNIFTY OI chart

MAY NIFTY Volatility

MAY NIFTY Volatility chart

MAY BANKNIFTY Volatility

MAY BANKNIFTY Volatility chart

JUN NIFTY Volatility

JUN NIFTY Volatility chart

JUN BANKNIFTY Volatility

JUN BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

VIX Density Plot

VIX kernel density plot

5-day forecast based on ARMA(5,2)+GARCH(1,1) model:

VIX 16.32 16.42 16.53 16.62 16.68
σ 0.82 0.85 0.87 0.89 0.90

A Brief Note on Monte Carlo

When we back-test a strategy against the historical prices of an instrument, say, the NIFTY 50 index, we have to keep in mind that historical values are just one path of the many paths that the instrument could have taken.

For example, 10 tosses of a fair coin can result in TTTTTFFFFF and TFTFTFTFTF with equal probability. If your strategy is path dependent (as most strategies are,) then just because it was successful in one trial (historical prices) doesn’t mean that it would have been successful in all (or majority) of them.

The simple thing to do after a successful back-test against historical prices is to run a Monte Carlo simulation to check if the strategy comes out ahead in most of them. This can be setup by assuming returns are normally distributed and running a simulation using the mean and standard deviation of the sample.

For instance, in the recent past, daily NIFTY 50 returns have exhibited a mean of -0.0003742873 and std. dev. of 0.01079387. When you run a simulation and plot the results over the actual closing prices of the index, you get the resulting chart:

monte-carlo.NIFTY

How many of these paths will result in a total equity wipeout of the back-tested strategy?