 By Mark ShoreIn the continuing series of discussing methods of trading the CBOE Volatility Index® (VIX®) futures contract traded on CBOE Futures Exchange, LLC (CFE®), this article will discuss utilizing the Commodity Channel Index (CCI). In each article, readers are reminded that the liquidity of a trading instrument is always very important. On March 1, 2013, CFE again reported a continuing trend of increased volume in the VIX futures contract. Specifically, February 2013 was the second consecutive month that achieved record average daily volume, total volume and single-day volume for the VIX futures contract and for CFE.i The average daily volume (ADV) for the VIX futures contract reached a record 161,176 contracts traded. This was an increase of 141% from February 2012 and an increase of 17% from January of 2013. February 25 and 26, 2013 experienced record volume days of 302,278 and 299,566 contracts traded respectively. This was also the first time that the VIX futures daily volume exceeded 300,000 contracts. The previously single-day record volume of 221,323 contracts was set on January 2, 2013. In February 2013, 3,062,344 VIX futures contracts were traded, representing an increase of 129% from February 2012. February 2013 trading represented a 6% increase from the record of 2,897,739 traded contracts set in January 2013. February 2013 was the sixth consecutive month in which trading exceeding two million VIX futures contracts and it was the first month in which trading exceeded 3 million VIX futures contracts. The CCI was developed by Donald Lambert and introduced in the October 1980 issue of Commodities magazine (aka Futures magazine). Application of the CCI is not limited to physical commodities and may apply to financial instruments as well. The CCI is a metric of an investment's variance from its statistical mean. The CCI reports high values when a market reaches an extended high price relative to its average price. It will report low values when a market reaches an extended low price relative to its average price. In basic terms, the CCI is an overbought/ oversold indicator.ii The CCI is based on the premise that all markets have cycles from low to low or high to high. The CCI is calculated by calculating a typical price of the day from the high + low + close and then creating a simple moving average of the typical price. The final equation of the CCI = (typical price – moving average)/ (0.015* mean deviation). Lambert applies a constant of 0.015 to keep 70% to 80% of the CCI value between +100 and -100.iii The CCI is considered overbought when the value exceeds +100 and is considered oversold when the value is below -100. However the CCI may extend beyond +100 and -100 and the market could remain overbought/ oversold for an extended period of time. If a market continues to remain overbought/ oversold, but the CCI is reversing (divergence appears) it may imply the market is nearing a correction. Some examples of divergence are provided in this article. Parameters of the CCI are based on cyclical periods of the market. For this article we assumed a 60 day cycle, using a 20 day (1/3 of the cycle) CCI parameter setting. The lower the parameter setting, the greater the probability of the CCI to reach overbought/ oversold values. Chart 1: Nearest Monthly VIX Futures Chart, 20 Month CCI
READ MORE i"Trading Volume in VIX Futures reaches New All-Time High for Second Consecutive Month", March 1, 2013, CFE Press Release iiAchelis, S. (2001). Technical Analysis from A to Z. New York, McGraw-Hill, 103:106 iii www.barchart.com Copyright ©2013 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
 By Mark Shore 3/1/2013 As the introductory Commodity Corner column I found this to be a good opportunity to introduce commodities and futures. One could argue commodities have been around since the beginning of civilization. People have produced, paid or bartered for commodities to use for either production or to consume. Some of the uses of commodities include food, energy, construction, manufacturing, and clothing. According to the Merriam-Webster dictionary, commodities are defined as: 1) an economic good. 2) A product of mining or agriculture. 3) An article of commerce especially when delivered for shipment. 4) A mass produced un-specialized product. [i] In today’s global markets both large and small firms will trade and hedge commodities as part of their daily business as either a producer or end-user of the commodity. For example a chocolate candy producing firm will need to purchase cocoa, sugar and of course energy to fuel their factories. If they do business in foreign countries they may need to buy and sell foreign currencies for hedging or delivery purposes. (See “Currencies in Your Future Portfolio?” of the Spring/Summer 2012 issue). To manage their price risk, a commodity producer, such as a farmer may sell a futures contract to lock-in their selling price. An end-user, such as a coffee chain may buy a futures contract to lock-in their purchasing price. Keep in mind commodity markets tend to be mean-reverting markets as they spike or decline from an average price and then revert back towards that average price overtime. This is often due to shocks in the system such as increased demand, reduction of supply, weather concerns, disruption of distribution channels or possibly political or regional events. If a commodity becomes too expensive, the market participants’ behavioral mechanism will appear as they seek less expensive substitutes. This is known in economics as the substitution effect and one of the differences to note between commodity and equity trading. Commodities are traded in two common locations: either the spot/cash market usually reserved for industry or sometimes known as “commercials” such as producers, distributors and end-users as the actual physical commodity is traded. Or the products trade on an exchange such as one of the futures exchanges found around the world. The futures exchanges are often utilized by both commercials and speculators. An exchange offers commercials the opportunity for immediate offset of their commodity risk by speculators offering liquidity to take on the risk. If a commercial has a loss from hedging, it often means they profited in the underlying cash market, because they are holding the opposite direction in the cash market. One can think of the loss on the hedge as a premium on an insurance policy. Read More [i] Shore, M. (2011) DePaul University 798 Managed Futures Lecture notes Copyright ©2012 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
 NYC PRMIA catastrophe bond event Professional Risk Managers International Association ( PRMIA) Presents: Understanding Cat Bonds Catastrophe bonds (Aka: Cat Bonds) and insurance linked securities received a lot of discussion recently as a result of Super Storm Hurricane Sandy. These securities are garnering renewed interest from risk managers, investors and issuers alike. This event has assembled a panel of industry leaders to give attendees some useful insights into these useful risk management tools. Topics Include:-Historical Issuance -Structure/Perils -Performance/Loss History -Investor Perspective: Attractive and Growing Asset Class READ MORE
 Mark Shore, Adjunct Professor of managed futures at DePaul University’s Kellstadt Graduate School of Business in Chicago and 25 year veteran of the futures industry notes increased interest in managed futures for the last several years. “Assets under management in managed futures have increased nearly 63% since 2008, and over 700% since 2000 according to BarclayHedge.” To help explain the managed futures message, Shore announced DePaul University will once again offer a graduate level managed futures course in the spring. As the demand for asset allocation education and alternative investment education increases, Shore notes, "individual & institutional investors and the graduate students are asking more questions about managed futures, a topic often found unfamiliar to many.” Does the recent market volatility increase the interest to understand managed futures? “The abnormal market volatility in recent years has a number of investors increasingly questioning the core principles behind a diversified investment portfolio, he said. “What’s needed is a greater understanding of dynamic correlation and tail risk.”
Below is a description of the course:This course is designed from a practitioner’s perspective to give students exposure to the managed futures industry within alternative investments by discussing various aspects and terminology of this asset class. Managed Futures includes the trading of commodities, financial futures and foreign exchange (also falls into the global macro category) and is one of the fastest growing asset classes and yet the investment management community is just beginning to understand it. There is a growing demand by the investment industry for practitioners who understand this product as the need to reduce non-correlation risk and reduction of tail risk increases. Portions of the course will introduce various metrics used for evaluating trading models and evaluating investment managers known as Commodity Trading Advisors (CTA). The course will discuss some trading strategies utilized and current topics/ macro economics as they relate to the lessons of the course. The students will learn to express their positive or negative views of fund managers and trading models to senior management, an investment committee or investors, thus utilizing the concepts of asset allocation and due diligence. Copyright ©2013 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro Mark is a contributing writer to Reuters HedgeWorld, the CBOE Futures Exchange and Micro-Cap Review. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
More Sources: - China Futures Margin Monitoring Center Co. Ltd. (CFMMC) on MarketsWiki (link)
- China System for Protecting Client Cash May Help U.S., NFA Says – Bloomberg (link)
- NFA and CME Group Select AlphaMetrix to Provide Data Aggregation Services (link)
Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
 CTA Expo Presents CTA EXPO New York 2013 CTA EXPO was established 2008 to help professional capital raisers and allocators identify futures trading talent and to promote investing in managed futures. CTA EXPO New York is a one day conference consisting of speakers and panels combined with a concurrent schedule of thirty minute presentations by individual traders and funds and industry workshops. Topics Include: -Seeders and Their Role in the Alternative Industry Read MoreCopyright ©2013 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
 Shift Forex Presents: Forex Industry Conference (FXIC) 2013 More companies have entered the FX space in the last 12 months than at any time in history. Collaboration is everywhere, and innovation is at its fastest pace ever. FXIC taps into the heart of the FX community, assembling buy- and sell-side participants, brokers and technology providers, media and compliance for networking and thought exchange. Speakers, panellists, topics, and sponsors are carefully selected to maximize value for each attendee. The event will bring together traditional and FX buy-side funds, retail and institutional FX brokerages, banks and non-bank liquidity providers, regulators and industry associations, marketing and technology providers, and non-FX brokerage firms exploring or growing an FX offering. Topics Include: Read MoreCopyright ©2013 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
In the continuing series of "Restoring Customer Confidence", below is the next video from our friends at Marketswiki.tv.
Byron Baldwin, SVP, Buyside Relations at Eurex, says his exchange developed segregated account services that can be as wide or granular as needed. Moving excess customer funds to a clearing house is one way to reduce the amount of capital at risk. More Sources:- Segregated funds (link)
- CFTC Final Rule: Investment of Customer Funds by Futures Commission Merchants and Derivatives Clearing Organizations, Regulation 1.25 (link)
- A Layman’s Guide to Regulation 1.25 (link)
- CFTC Final Rule: Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management (link)
- Derivatives Clearing Organizations Regulation (link)
- Boarding the “Wrong Train” – Five Minutes with Gary DeWaal, Newedge (link)
- Eurex Clearing – Client Asset Protection (link)
Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
With the introduction of the Dodd-Frank Act, and the corporate implosions of MF Global and PFG, our friends at Marketswiki.tv continues their series of "Restoring Confidence". Below is their video interview with New York Law School Professor Ron Filler discussing gross margining as a method to alleviate segregated customer account risk.
Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
 By Mark ShoreIn 2012 we discussed methods of trading the CBOE Volatility Index (VIX) futures contract at CBOE Futures Exchange, LLC (CFE). In this article, we will review the previously discussed trading methods and how to apply them to the current market environment. Liquidity is an important factor for trading. Several times during 2012 VIX futures volume reached record levels including a record high of 2,734,248 contracts in November, Which was a 233% increase from November 2011's 822,017 contracts and which broke the prior trading volume record set in October by 12%. In November the Average Daily Volume for VIX futures was 130,202, an increase of 233% from November 2011. To date, the November VIX futures total volume is 86% higher than it was in 2011 and year-to-date trading volume is 21,344,285 contracts versus 11,455,871 in 2011.i In past articles we discussed the use of four VIX futures trading strategies: 1) utilizing support and resistance to seek contrarian changes at range bound extremes; 2) crossing of moving averages; 3) utilizing the Aroon Oscillator; and 4) using the True Range to trade VIX futures. In this article the parameters have been set to the same level as they were set in previous articles. We begin discussing the support and resistance methodology. We originally discussed this in the September 2012 article "VIX Trading Strategies". The VIX futures contract historically tends to find major price support between 10 and 15 and it finds major price resistance around 40 (with the exception of the financial crisis). As you will notice in the monthly chart below VIX futures tend to rally after forming a floor at or near a price of 15. This most recently occurred in 2010 and 2011. During the last several months, the VIX contract has once again found the price of 15 to be major price support area. Could this be the foundation of a floor for a rally in 2013? Chart 1: Monthly Nearest VIX Futures Chart with Support and Resistance READ MORECopyright ©2012 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
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