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EQDerivatives: "VSTOXX® Futures spreads garner interest as key events near"

Erscheinungsdatum: 12. Mai 2016 | Eurex Exchange

EQDerivatives: "VSTOXX® Futures spreads garner interest as key events near"

By Rob McGlinchey

This article first appeared on 09 May 2016 in EQDerivatives' subscription Commentary & News service.

Portfolio managers have shown increased interest in trading VSTOXX® Futures spreads in an effort to profit from the vol differential between monthly expiries. Although the EURO STOXX 50® continues to be used primarily to hedge event risk, others are finding greater value in using the VSTOXX® as a way of positioning around the E.U. referendum. Elsewhere, investors are showing greater interest in 1x2 put ratios on VSTOXX® June Futures.

About Robert McGlinchey

Robert is director and co-founder of EQDerivatives, Inc.

Previously derivatives editor of GlobalCapital, and managing editor of Derivatives Week, Euromoney Institutional Investor, Robert has covered the derivatives market

across all asset classes in the Americas, Europe and Asia Pacific.

Robert has experience in launching a host of leading derivatives events and supplements, as well as surveys and rankings. He regularly chairs industry conferences focused on the equity derivatives market and industry regulation.

A graduate of St. Mary’s College, University of Surrey, he’s based in London.


Abhinandan Deb, head of EMEA equity derivatives research and cross-asset quantitative investment strategies at Bank of America and Merrill Lynch in London, told EQDerivatives that the June expiry, for example, has seen a vol differential to its neighbouring expiries being more than four vol points, which is a rare occurrence.

“A lot of people have been curious around the big kink in the VSTOXX® curve. Before this kink got that big, i.e. two months ago, there was little difference between the May and the June future, but in mid-April, the June vs. May future spread rose to more than four vol points. Spread trading in VSTOXX® Futures has afforded another way for investors to position for the risk of Brexit,” said Deb.

Over the last week, investors have increasingly been rolling protection out to September in the EURO STOXX 50®, targeting not only the potential of Brexit, but also risk surrounding central bank meetings and the Spanish general election. The VSTOXX®, however, is continuing to offer investors an attractive instrument to hedge event risk in Europe, even though the average vega traded via VSTOXX® instruments up to six month tenors compared to EURO STOXX 50® Options is around 10 percent.

“The VSTOXX® offers another alternative to investors and some people have taken advantage of the opportunities in the product. For example, July Options in SX5E were only listed last month but the VSTOXX® June Future had been trading well before that, so you could have put a position specifically around a July event using June Futures before the EURO STOXX® Options were available,” noted Deb.

Aside from Futures spread trading in the VSTOXX® and directional Options positioning in the product, flow in strategies to participate in the VSTOXX®/VIX spread has remained subdued. Deb added that although you could view the VSTOXX®/VIX spread as having moved to a higher average, the depressed level of volatility in the U.S. may deter some investors.

“The U.S. equity market has recently flirted with all-time highs, but that’s not the case with the European market. There are people that expect a higher average level in the VSTOXX®/VIX spread, but get concerned that the VIX has been ultra low as they are somewhat sceptical of further U.S. market upside. So there will be some hesitation in investors acting upon expecting a higher VSTOXX®/VIX average,” said Deb. “That’s not to say that the trade is not profitable and people are still looking at it as a technical and more strategic trade.”

Separately, hedge funds and institutional investors are showing interest in 1x2 put ratios on June VSTOXX® Futures after the recent vol rally in Europe. It followed a JPMorgan research report highlighting that June Futures have been trading around 28 in recent days with a rally unlikely to go beyond 30 as it would coincide with a recessionary scenario. The downside for the VSTOXX® is likely to be higher than 20, meanwhile, as June Futures are bounded below by the EURO STOXX 50® June-July forward volatility, which will be well supported due to the E.U. referendum, the report noted.

EQDerivatives, Inc. is a research and commentary provider focused on the institutional equity and volatility derivatives market. Our content is delivered to the buyside, sellside and asset owners.

We deliver detailed, high-quality commentary and research that clients can use to make sense of what is moving the market now. Our research will sharpen business development for product providers and their customer acquisition and retention strategies.






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