Interdum stultus opportuna loquitur...

Wednesday, October 08, 2008

OzRant: Gotta Love Compulsory Super About Now...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

How sharper than the serpents tooth it is to have a thankless friend, as the blond Baby Jeebus once said (in American-accented English) to his pet dinosaur.

A former colleague took it upon himself to telephone me and say that he had no recollection of me ever saying to buy VIX futures.

There was no implication that I was making it up, according to this chap: he simply couldn't find the offending post when he did a search of the archive.

Odd, thinks I: so I tries and does me own search. 

It turns out that searching just for "VIX" is a pain, because every USRant includes it. Using a hard quote ("buy VIX futures") also sucks, because that specific phrase doesn't seem to appear anywhere.

Still, knowing the old Bridge futures code (VX) and having some background in research (which enables one to formulate sensible search terms), it took me two minutes to find the post in question... and here it is: from July 19 2005's  Time to Buy (Volatility, That Is)...

...The last one is probably the safest strategy for now, since volatility could (and should) expand almost regardless of the direction of the market. If the VIX dips back towards 10, buying VIX futures (the symbol is VX or VIX depending on your data provider) would seem a no-brainer.

The contract is specified in terms of an 'increased value' VIX (i.e., the VIX multiplied by ten), and currently the front-month is August (which closed at 126.4). A 1-point move in the VIX futures is equivalent to a 0.1 point move in the underlying VIX, and has a value of $100; thus a 1-point move in the underlying VIX (from 10 to 11, say) results in a profit of $1000 per contract. The contract margin requirement is $3750, but it's also possible to buy options over the futures in order to reduce the required outlay.

So anyhow... I have not calculated the aggregate gains on a rolled-over VX futures position, primarily because of issues relating to rollover premia (where the forward contract is above or below the expiring front month at the rollover date). I have planned to construct continuous contract data for all futures that we cover on the subscription site, and maybe this will spur that plan towards action. 

Ignoring rollover premia, let's just note that on the date of that post, the VIX futures settled at 120.9 (the 126.4 mentioned in the post was the prior day's close), and after rescaling for the contract rescale of July 2007, yesterday the VIX futures settled at 417.5 (41.75 on the new scale). 

Each point on the old scale was $100, so you're looking at 296.6  times $100 ($29,660) as the gain on an initial outlay of $3750.

Profits would be reduced by $3 per contract rollover for brokerage, of course, but - and this goes back to the rollover question - you will see that VIX futures are almost ALWAYS in backwardation. That means that almost every futures rollover results in a new position at a reduced price... which adds to profits (for example - at the moment November VIX is trading at a 7 point discount to the October contract... a year ago the backwardation was only 1 point, but that still added $1000 to position profits, which is not inccluded in the $29660 figure).

From time to time, I mention the long-volatility position - which has never been countermanded, and so is still 'live' - just to point out that I'm not just a gunslinger who scalps intraday trades: as with the 2002 SuperTrade, from time to time there are epochal changes in financial markets which are easy to divine so long as you don't work for a brokerage. 

Harking back to the 2002 SuperTrade: I challenge anybody to find a brokerage analyst who said the following long term declaration on or before January 30th 2002 (the date that I outlined the position):

  • buy Gold (gold was $281.90)
  • buy Euro (the euro was USD0.8599)
  • buy Oil (oil was $19.08 a barrel)
  • sell S&P (the S&P was 1115)

Now I don't claim that the 2002 SuperTrade is still active - it was declared closed some time ago, sadly. 

That said, the logic of the SuperTrade stands: it still details the direction of the longer-run attractors for each market, which is based on my 2000 analysis that the US was going to break up into three different countries before 2025 (and thus the USD would become literally worthless) and thus 'anti-USD' positions were the dominant bias for the first quarter of the new century.. 


Major Market Indices

The broad market - the All Ordinaries (XAO) - slid pretty savagely, posting a loss of 228.1 points (4.96%), finishing at 4369.8 points. The index hit an intraday high of 4451.5 at 12:26 pm, while the low for the day was 4364 - set at 3:42 pm Sydney time. The last time the All Ords traded at this level was late October 2005: you need to go back to October 31st 2005 to find a day with a low lower than today's session low, and October 28th 2005 for a closing price lower than today's close.

Imagine all the retirement accounts that have been destroyed as a result of this meltdown - and when you do imagine it, make sure you focus your rage in the right direction: the political class. Not short sellers (the market declines have accelerated since the stupid and childish - and pointless - short selling ban). Not even bankers and ticket clippers are to blame - they are utility-maximising agents who respond to the incentives provided to them by the warping of economic activity BY POLITICIANS, whose every interference in the market ccreates a perversion of incentives.

Total volume traded on the ASX was 1.19bn units, 7.5% below its 10-day average. The ASX's daily listing of all stocks included 1192 different 3-letter FPO's which traded (i.e., had non-zero trade volume). Of these, 176 issues rose, with volume in rising issues totalling 82.6m units; decliners numbered 836 counters, and between them they traded aggregate declining volume of 978.1m shares.

Of the 496 All Ordinaries components, 48 rose while 397 fell. Volume was tilted in favour of the losers by a margin of 16.1:1, with 49.68m shares traded in gainers while 801.65m shares traded in the day's losers.

The Index that forms the cash basis for the SFE's Share Price Index Futures - the S&P/ASX 200 (XJO) - dipped pretty savagely,rather savagely, losing 230.6 points (4.99%), closing out the session at 4388.1 points.

GT Intraday Chart
Name Close +/-(%)
All Ordinaries 4369.80 -228.10 (5.0%)
ASX 20 2585.80 -128.80 (4.7%)
ASX 50 4375.00 -226.50 (4.9%)
ASX 100 3594.10 -188.40 (5.0%)
ASX 200 4388.10 -230.60 (5.0%)
ASX 300 4369.70 -230.70 (5.0%)
ASX Mid-Cap 50 4176.70 -237.80 (5.4%)
ASX Small Ordinaries 2191.20 -124.40 (5.4%)

The "heavy hitters" of the Australian market - the ASX 20 Leaders (XTL) - was taken to the woodshed somewhat, sliding 128.8 points (4.74%), closing out the session at 2585.8 points.

Among the 20 big guns, the news was pretty dismal: not a single stock registered a gain for the session. A total of 146.14m units was traded in the losing index components. The following stocks were the worst-performed within the index:

  • Macquarie Group (MQG), -$3.3 (9.22%) to $32.50 on volume of 2.3 million shares;
  • Stockland (SGP), -$0.47 (8.25%) to $5.23 on volume of 11.3 million shares;
  • Suncorp-Metway (SUN), -$0.89 (8.09%) to $10.11 on volume of 4.8 million shares;
  • Rio Tinto (RIO), -$6.65 (7.58%) to $81.12 on volume of 2 million shares; and
  • St George Bank (SGB), -$2.24 (7.38%) to $28.12 on volume of 1.4 million shares.

At the other end of the market-cap spectrum lie the denizens of the ASX Small Ordinaries (XSO). The Small Ords got the sort of kicking that happen to people who cross Brick Top, sliding 124.4 points (5.37%), closing out the session at 2191.2 points.

Among the stocks that make up the Small Caps index, 16 index components finished to the upside, and of the rest, 179 closed lower for the session.

The 208 stocks which make up the index traded a total of 303.13m units: volume in the 16 gainers totalling 11.24m shares, with trade totalling 278.54m units in the index's 179 declining components. The major percentage gainers within the index were
  • Rubicon Japan Trust (RJT), +$0.001 (13.04%) to $0.03 on volume of 250.4 thousand shares;
  • Australian Education Trust (AEU), +$0.03 (9.37%) to $0.35 on volume of 128.5 thousand shares;
  • Cabcharge Australia (CAB), +$0.27 (4.07%) to $6.90 on volume of 151.9 thousand shares;
  • Babcock&Brown Japan Property Trust (BJT), +$0.02 (2.61%) to $0.59 on volume of 1.8 million shares; and
  • Cape Lambert Iron Ore Ltd (CFE), +$0.01 (2.5%) to $0.41 on volume of 2.9 million shares.

In the red-zone of the little-stock index, the following list represents the biggest downers (in terms of percentage decline):

  • Nexus Energy (NXS), -$0.33 (29.82%) to $0.77 on volume of 7.7 million shares;
  • AJ Lucas Group (AJL), -$1.25 (27.47%) to $3.30 on volume of 823.5 thousand shares;
  • Flexigroup (FXL), -$0.12 (26.44%) to $0.32 on volume of 696.3 thousand shares;
  • Aditya Birla Minerals (ABY), -$0.21 (21.35%) to $0.76 on volume of 561.8 thousand shares; and
  • Bannerman Resources (BMN), -$0.1 (19%) to $0.41 on volume of 381.2 thousand shares.

Index Changes
Code Name Close +/- % Volume
XAO All Ordinaries 4369.8 -228.1 -4.96 898m
XFL ASX 50 4375 -226.5 -4.92 304.7m
XJO ASX 200 4388.1 -230.6 -4.99 723.6m
XKO ASX 300 4369.7 -230.7 -5.01 821.8m
XMD ASX Mid-Cap 50 4176.7 -237.8 -5.39 219.5m
XSO ASX Small Ordinaries 2191.2 -124.4 -5.37 297.6m
XTL ASX 20 2585.8 -128.8 -4.74 138.6m
XTO ASX 100 3594.1 -188.4 -4.98 524.2m
Market Breadth
Advances 0 3 11 48 16 176
Declines 20 97 188 397 179 836
Advancing Volume 0m 34.4m 41.5m 49.7m 11.2m 82.6m
Declining Volume 146.1m 483.8m 686.5m 801.7m 278.5m 978.1m
GICS Industry Indices

Among the 11 industry indices, the news was universally negative: not a single sector managed to break into the "Win" column.

Since none of the industry sectors registered a gain for the session, there is no point in burdening ourselves with the internal behaviour of advancing sectors... on to the losers.

The worst-performed index for the session was Information Technology (XIJ), which dipped 41 points (8.02%) to 470.2 points. The 2 stocks which make up the index traded a total of 2.43m units; both declined, with the damage as follows

  • Computershare (CPU), -$0.79 (8.64%) to $8.35 on volume of 2.1 million shares; and
  • Iress Market Technology (IRE), -$0.15 (2.85%) to $5.12 on volume of 377.2 thousand shares.

Just missing out on the wooden spoon was Energy (XEJ), which slid 1034.4 points (7.06%) to 13620.6 points. The 19 stocks which make up the index traded a total of 56.68m units; The 19 decliners had volume traded totalling 56.68m units, and volume in the lone rising index component was 0m shares, The major percentage decliners within the index were

  • Nexus Energy (NXS), -$0.33 (29.82%) to $0.77 on volume of 7.7 million shares;
  • Linc Energy Ltd (LNC), -$0.74 (18.78%) to $3.20 on volume of 1.9 million shares;
  • Riversdale Mining (RIV), -$1.17 (17.7%) to $5.44 on volume of 946.4 thousand shares;
  • Paladin Energy (PDN), -$0.58 (17.68%) to $2.70 on volume of 6.7 million shares; and
  • Felix Resources (FLX), -$2.13 (16.77%) to $10.57 on volume of 617.6 thousand shares.

Third-to-last amongst the sector indices was Materials (XMJ), which slid 665.1 points (6.32%) to 9856 points. The 45 stocks which make up the index traded a total of 202.36m units; The 40 decliners had volume traded totalling 172.78m units, and 5 index components rose, with rising volume amounting to 29.58m shares, The major percentage decliners within the index were

  • PanAust Ltd (PNA), -$0.08 (18.18%) to $0.36 on volume of 14.8 million shares;
  • Alumina (AWC), -$0.47 (15.82%) to $2.50 on volume of 8.7 million shares;
  • Macarthur Coal (MCC), -$1.21 (14.74%) to $7.00 on volume of 1.4 million shares;
  • Fortescue Metals Group Ltd (FMG), -$0.61 (14.42%) to $3.62 on volume of 10.1 million shares; and
  • Atlas Iron (AGO), -$0.2 (13.7%) to $1.26 on volume of 1.9 million shares.

Sector Indices
Code GICS Sector Close +/- % Volume
XUJ Utilities 4675.6 -114.9 -2.4 32m
XHJ Healthcare 9139.6 -241.2 -2.57 9m
XTJ Telecommunications 1447.1 -46.2 -3.09 42m
XPJ Property Trusts 1342.5 -50.9 -3.65 154m
XNJ Industrials 4098.1 -159 -3.73 87m
XDJ Consumer Discretionary 1478 -62.5 -4.06 42m
XSJ Consumer Staples 6891.9 -326.8 -4.53 38m
XXJ Financials ex Property Trusts 4815.7 -258.8 -5.1 88m
XMJ Materials 9856 -665.1 -6.32 202m
XEJ Energy 13620.6 -1034.4 -7.06 57m
XIJ Information Technology 470.2 -41 -8.02 2m

All Ordinaries Major Movers

All Ords Volume Leaders
Code Name Close +/- % Volume
TLS Telstra Corporation Limited. 4.26 -0.12 -2.74 34.8m
SBM St Barbara Limited 0.24 -0.02 -7.84 25.3m
DXS Dexus Property Group 1.34 -0.14 -9.46 21.6m
OZL OZ Minerals Limited 1.28 -0.18 -12.03 19.2m
BNB Babcock & Brown Limited 1.05 -0.26 -19.54 17m
All Ords Percentage Gainers
Code Name Close +/- % Volume
CEG CEC Group Limited 0.25 0.04 19.05 61k
TGP Trafalgar Corporate Group 0.70 0.10 16.67 219.6k
RJT Rubicon Japan Trust 0.03 0.00 13.04 250.4k
SPH Sphere Investments Limited 1.00 0.10 11.11 252.5k
ZIM Zimplats Holdings Limited 11.00 1.00 10 3.7k
All Ords Percentage Losers
Code Name Close +/- % Volume
NXS Nexus Energy Limited 0.77 -0.33 -29.82 7.7m
CZA Coal of Africa Limited 1.20 -0.47 -28.14 1.1m
AJL AJ Lucas Group Limited 3.30 -1.25 -27.47 823.5k
FXL Flexigroup Limited 0.32 -0.12 -26.44 696.3k
ABY Aditya Birla Minerals limited 0.76 -0.21 -21.35 561.8k