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Alternative Market Briefing

Weak US economic data could cause more VIX spikes

Wednesday, February 05, 2014

Bailey McCann, Opalesque New York:

Volatility could be returning to the market following a low volatility 2013. The Chicago Board Options Exchange (CBOE) Volatility Index jumped 34% last month for the biggest January on record. The VIX climbed 16% on Monday to 21.44, a one-year high after economic data showed weakened US manufacturing numbers. The market reaction was notable as there were periods of slightly weaker manufacturing and other economic indicators in 2013 that failed to spark similar activity. With retail sales and non farm payroll numbers still on the horizon, this week could be very active on the VIX.

"I think you're starting to see that the market thinks there has been too much news falling below expectations - China, manufacturing, emerging markets, earnings. This could be a wake up call for what we're in for in 2014," says Will Lloyd, Managing Director, VelocityShares in an interview with Opalesque.

Last week was the single largest week in history for volumes (in terms of number of contracts traded) on the front-month VIX futures, capping off the largest volume month in history. As volatility spikes, so too are there large increases in short volatility bets. During Monday's spike, XIV traded nearly $1bn - almost triple its usual volume. XIVSO also saw a 58.5% increase in January.

Economists expect non farm payrolls to be generally positive for January, the survey week happened before the polar vortex weather system slowed everyth......................

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