Opening Bell 12.02.2016

Your world at 9am

world.2016-02-12

Equities

Major
DAX(DEU) -2.93%
CAC(FRA) -4.05%
UKX(GBR) -2.39%
NKY(JPN) -5.34%
SPX(USA) -1.23%
MINTs
JCI(IDN) -0.36%
INMEX(MEX) -0.49%
NGSEINDX(NGA) +2.19%
XU030(TUR) -0.83%
BRICS
IBOV(BRA) -2.62%
SHCOMP(CHN) -0.63%
NIFTY(IND) -3.32%
INDEXCF(RUS) -1.11%
TOP40(ZAF) -2.22%

Commodities

Energy
WTI Crude Oil +5.15%
Brent Crude Oil +4.56%
Heating Oil +3.94%
RBOB Gasoline +4.19%
Ethanol +0.00%
Natural Gas +0.05%
Metals
Platinum -0.90%
Silver 5000oz +0.00%
Copper +0.00%
Gold 100oz -0.95%
Palladium -0.64%

Currencies

USDEUR:+0.11% USDJPY:+0.00%

MINTs
USDIDR(IDN) +0.22%
USDMXN(MEX) +0.17%
USDNGN(NGA) +0.00%
USDTRY(TUR) +0.16%
BRICS
USDBRL(BRA) +1.61%
USDCNY(CHN) +0.07%
USDINR(IND) +0.66%
USDRUB(RUS) -0.59%
USDZAR(ZAF) +0.46%
Agricultural
Cotton -0.39%
Orange Juice +0.00%
Soybean Meal +0.04%
White Sugar +0.00%
Feeder Cattle +0.00%
Lumber +0.00%
Sugar #11 +0.00%
Cocoa +0.00%
Coffee (Arabica) +0.00%
Coffee (Robusta) +0.00%
Corn +0.14%
Soybeans +0.17%
Wheat +0.33%
Cattle +0.00%
Lean Hogs +0.00%

Credit Indices

Index Change
Markit CDX EM -0.43%
Markit CDX NA HY -0.17%
Markit CDX NA IG +1.89%
Markit iTraxx Asia ex-Japan IG +0.00%
Markit iTraxx Australia -0.59%
Markit iTraxx Europe -2.48%
Markit iTraxx Europe Crossover -6.92%
Markit iTraxx Japan -2.41%
Markit MCDX (Municipal CDS) -1.67%
Out of 42 world ETFs listed in NYSE that we track, only 5 are trading above their 10-day and 50-day SMAs.

Must reads

UAE: India has market, gulf has funds. But given the state of oil, for how long? (ET)

Former FSA chief Lord Adair Turner on UK peer-to-peer lending industry: “the losses which will emerge from peer-to-peer lending over the next five to 10 years will make the worst bankers look like lending geniuses.” (FT)

Kyle Bass: “Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking. Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.” (CNBC)

Rakesh Jhunjhunwala: I will believe in e-commerce model when they sell at an economical price. (LiveMint)

It is high time the government comes out of the denial mode and, instead of celebrating dubious data, works towards a credible solution. (FE, #economy)

Good luck!

Options Daily 12.02.2016

NIFTY Summary:

  1. Feb 7200 calls added 20,54,250 contracts.
  2. Feb 7700 calls shed 5,36,025.
  3. Feb 7000 puts added 6,93,375.
  4. Feb 7300 puts shed 11,39,625.

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

FEB NIFTY OI

FEB NIFTY OI chart

FEB BANKNIFTY OI

FEB BANKNIFTY OI chart

FEB NIFTY Volatility

FEB NIFTY Volatility chart

FEB BANKNIFTY Volatility

FEB 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(2,3)+GARCH(1,1) model:

VIX 25.73 25.22 25.23 25.01 24.90
σ 1.85 1.77 1.69 1.63 1.57

Opening Bell 11.02.2016

Your world at 9am

world.2016-02-11

Equities

Major
DAX(DEU) +1.55%
CAC(FRA) +1.59%
UKX(GBR) +0.71%
NKY(JPN) -2.31%
SPX(USA) -0.02%
MINTs
JCI(IDN) +0.86%
INMEX(MEX) +0.41%
NGSEINDX(NGA) +0.64%
XU030(TUR) +0.27%
BRICS
IBOV(BRA) -0.53%
SHCOMP(CHN) -0.63%
NIFTY(IND) -1.13%
INDEXCF(RUS) +0.43%
TOP40(ZAF) +0.07%

Commodities

Energy
Heating Oil -0.18%
RBOB Gasoline -0.90%
Brent Crude Oil -1.01%
Natural Gas +0.34%
Ethanol +0.00%
WTI Crude Oil -1.79%
Metals
Copper -0.79%
Gold 100oz +1.28%
Silver 5000oz +0.74%
Platinum +0.27%
Palladium -0.50%

Currencies

USDEUR:+0.06% USDJPY:-0.45%

MINTs
USDIDR(IDN) -0.12%
USDMXN(MEX) +0.09%
USDNGN(NGA) -0.04%
USDTRY(TUR) +0.08%
BRICS
USDBRL(BRA) +0.65%
USDCNY(CHN) +0.07%
USDINR(IND) -0.06%
USDRUB(RUS) -0.44%
USDZAR(ZAF) +0.03%
Agricultural
Cocoa +0.00%
Corn -0.07%
Lumber +0.00%
Coffee (Robusta) +0.00%
Lean Hogs +0.00%
Sugar #11 +0.00%
Cattle +0.00%
Coffee (Arabica) +0.00%
Feeder Cattle +0.00%
Orange Juice +0.00%
Soybeans +0.03%
Wheat -0.05%
Cotton +0.03%
Soybean Meal +0.19%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM -0.22%
Markit CDX NA HY +0.03%
Markit CDX NA IG -0.93%
Markit iTraxx Asia ex-Japan IG +0.00%
Markit iTraxx Australia +5.03%
Markit iTraxx Europe -2.10%
Markit iTraxx Europe Crossover +2.06%
Markit iTraxx Japan +7.31%
Markit MCDX (Municipal CDS) -1.00%
Out of 42 world ETFs listed in NYSE that we track, only 10 are trading above their 10-day SMA and only 11 are trading above their 50-day SMA.

Must reads

Amazon is stepping up its pace of investment at a time when Flipkart and Snapdeal are likely to struggle to raise funds. (LiveMint)

Banks are planning to write off more bad loans in the current year, and this could be Rs 52,227 crore, similar to the quantum written off in 2014-15. However, small loans rarely in it. (FE)

The Federal Reserve is unlikely to reverse its plan to raise interest rates further this year, but tighter credit markets, volatile financial markets, and uncertainty over Chinese economic growth have raised risks to the US economy, Fed Chair Janet Yellen told US lawmakers on Wednesday. (BT)

Credit stress in the European banking system has suddenly turned virulent and begun spreading to Italian, Spanish and Portuguese government debt, reviving fears of the sovereign “doom-loop” that ravaged the region four years ago. (Telegraph)

EMs caught between China crimping demand on one side and the US Fed draining liquidity on the other. (FT)

Good luck!

Options Daily 11.02.2016

NIFTY Summary:

  1. Feb 7300 calls added 17,17,575 contracts.
  2. Feb 7600 calls shed 2,38,650.
  3. Feb 7000 puts added 7,59,450.
  4. Feb 7400 puts shed 6,50,700.

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

FEB NIFTY OI

FEB NIFTY OI chart

FEB BANKNIFTY OI

FEB BANKNIFTY OI chart

FEB NIFTY Volatility

FEB NIFTY Volatility chart

FEB BANKNIFTY Volatility

FEB 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(2,3)+GARCH(1,1) model:

VIX 22.28 22.11 22.05 21.94 21.86
σ 1.17 1.16 1.14 1.13 1.12

Macro Volatility and the NIFTY 50

This post is a continuation of our exploration of trying to use macro market indicators to time the NIFTY 50. See World Markets and the NIFTY 50 and India VIX vs. SPX VIX.

Perhaps the problem with using price moving averages was that the major moves were already done before we could short the NIFTY. What if we used volatility instead? Here is how the median of 10-day volatility of major world indices looks like:

macro.volatility

What if we went long only when volatility was below the median and went short otherwise?

macro.trade.a

Looks like the strategy works only in avoiding the 2008 crash. Using observed volatility to time trades doesn’t work. One more to the reject pile.