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.”

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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.

Creative inspiration is derived in many ways. The recent fiscal cliff debate in Washington D.C. may impact the economy at both the local and national level. I was inspired to write the following fun piece below:

Was the Night Before Fiscal Cliffness

By Mark Shore 12/28/2012

Inspired by “Twas the Night Before Christmas” and the craziness of D.C.

Everyone lets gather around the fireplace,

I have a story to tell you of a distant place,

Where everyone kicks a can without any disgrace:

Was the night before Fiscal Cliffness and all thro’ the house,

Not a congressional member was stirring, not even the speaker of the house,

The line was drawn in DC with care,

In hopes each would get what they wanted, but would not share,

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Copyright ©2012 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com

Follow Mark Shore on Twitter and Facebook

Continuing the series of discussing various methods of trading the CBOE Volatility IndexÂź (VIXÂź) futures contract at CBOE Futures Exchange, LLC (CFE), we will discuss the utility of the True Range indicator and the Average True Range indicator. In previous articles we discussed the use of spreading, correlations, moving averages and the Aroon indicator as methods of trading VIX futures.

Liquidity is an important factor of risk management. CFE announced on November 1, 2012, record volume in October 2012 for both the VIX futures contract and total volume of the Exchange. VIX futures reached a record 2,443,878 contracts traded in October 2012, a 172% increase from October 2011 and a 2% increase from September 2012. The October 2012 Average Daily Volume was 116,375 contracts, a 172% increase from October 2011 and a decrease of 8% from September 2012. However, the markets were closed for two days in October due to hurricane Sandy.i

In previous articles we discussed VIX futures as a mean-reverting market tending to find major price support between 10 and 15 and major price resistance around 40. However, within this range, market turning points do develop from time to time. The True Range indicator is a method of seeking changes in market momentum.

The True Range indicator and the Average True Range were developed by Welles Wilder, also known for developing the Relative Strength index, Directional Movement and the Parabolic Stop and Reverse. True Range is considered a metric of a market’s activity or volatility. Wilder first published the True Range indicator in his 1978 book “New Concepts in Technical Trading Systems”. The True Range indicator posits that the higher the number, the more likely the market will change direction. A lower number would indicate a weaker trend or indication of a sideways market. The True Range is defined as the maximum value of the following: 1) today’s high to today’s low; 2) yesterday’s close to today’s high; and 3) yesterday’s close to today’s low. The Average True Range is a moving average of the True Range.

VIX futures are an indicator of S&P 500 Index volatility and True Range is a volatility of the volatility or a second derivative of the READ MORE

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.

In the September 2012 newsletter, the article “VIX Trading Strategies” was the first in a series discussing various technical and quantitative trading strategies beginning with a simple moving average approach to trading the CBOE Volatility Index (VIX) VIX futures contract. This article discusses the use of the Aroon Oscillator.

The VIX futures contract tends to be mean-reverting, thus seeking overbought conditions is a logical approach to trading this market. As we noted in the previous article, VIX futures tends to trade between a major resistance near 40 and a major support of 10 to 15, and within that the market may trend.

Developing trading strategies involves the investigation of a market’s liquidity for various reasons, including the potential for slippage. On October 1, 2012, CBOE Futures Exchange, LLC (CFE) once again reported record volume in VIX futures. In September 2012 the Average Daily Volume reached a new record of 126,345 contracts versus the previous record of 102,587 contracts traded in June 2012. A new record was set in September 2012 of 2,400,552 contracts traded surpassing the previous record of 2,154,325 contracts traded in June 2012. i

For those not familiar with the Aroon Oscillator, it was developed by Tushar Chande in 1995. The oscillator first appeared in the September 1995 issue of Technical Analysis of Stocks and Commodities magazine. The word “Aroon” is Sanskrit for “dawn’s early light”, thus seeking changes in a market. The oscillator is the differential between the Aroon Up and the Aroon Down indicators which creates an oscillator indicating a market’s strength in a trading range.

It is defined as an oscillator because it ranges between READ MORE

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.

In the May 2012 newsletter article “Volatility Futures: Relative Strength: A Family of Futures Products”, we discussed various methods of trading volatility futures products as spreads or indicators, with some discussion of their basic characteristics.

This article will provide discussion of trading methods for individual volatility futures products. The CBOE Volatility IndexÂź (VIXÂź) futures contract tends to be mean-reverting and trades within a range bound market.

Excluding the 2008 financial crisis, the VIX level tends to fluctuate between 40 and 10. For liquidity seeking traders, hedgers or managers, the chart below demonstrates the increasing volume and open interest in VIX futures, making it a viable choice for a liquid portfolio.

VIX futures trading volume recently reached a new high on three fronts:

1) In August 2012, the VIX futures average daily volume increased by 4.6% to 83,016 contracts versus August 2011 volume of 79,402 contracts.

2) The total volume year to date trading volume in VIX futures has increased by 59% to 13.7 million contracts versus January through August of 2011 volume of 8.6 million contracts.

3) On September 13, 2012 the VIX futures contract reached a new single-day volume record of 190,081 contracts traded. The previous record was 159,744 contracts traded on June 8, 2012.

In a range bound market, long term directional trading may not work as well as it would in other futures markets. Overbought and oversold indicators may have greater utility value. However in the shorter term (duration of days and weeks), directional trades may offer some value.

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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 CBOE’s Chicago Futures Exchange and 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.

Published July 31, 2012
CBOE Futures Exchange
“Futures in Volatility” Newsletter
By Mark Shore

While analyzing the utility value of the CBOE Volatility Index (VIX) futuresÂź contract relative to the underlying market (S&P 500), a question often arises regarding the correlation of these two instruments. In this article we look at various durations of rolling correlations to determine its utility value.

The “static” correlation of two investment components is often quoted in a correlation matrix table when multiple markets are discussed or if there are only two markets, a single quote.

From January 2004 to June 2012, static correlation of daily VIX end of day data to the S&P 500 is -0.75. However, a static correlation does not always offer a strong profile of correlation. Correlation typically depends on the time duration of a holding period, thus building a profile of that period. One must keep in mind the S&P 500 has a growth component, whereas the VIX is more of a mean reverting market with moments of upward or downward spikes.

Between January 2004 and June 2012, the VIX reached its maximum close of 80.06 on October 27, 2008. It reached a minimum of 9.89 on January 24, 2007. During this period the VIX has averaged 21.08

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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.

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
CBOE Futures Exchange “Futures In Volatility” Newsletter
May 31,  2012

Many investors are familiar with the CBOE Volatility Index (VIX) that is calculated based on options on the S&P 500 Index option and is an indicator of implied volatility and investor sentiment. But some may not be aware that CBOE Futures Exchange (CFE) lists and trades the VIX futures contract (Ticker symbol: VX).

The popularity of the VX futures contract has grown and the VX futures contract recently experienced its highest trading volume month in March 2012 with 1.96 million contracts traded, which is an 84% increase from a year earlier.

As the popularity of the VX futures contract increases, CFE continues to expand the volatility index franchise to include futures and security futures contracts covering several underlying markets. See the table below for a list of the volatility index futures and security futures that CFE currently offers for trading on its market.

From the retail investor to the institutional investor or money manager such as a Commodity Trading Advisor or hedge fund, there is always the question: “How can an investor utilize these contracts in a portfolio?”

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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 and the CBOE Futures Exchange.

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.

Written by Bob English

Ahead of Tuesday’s Senate Banking Committee hearing on MF Global, we present the April 20 installment of Capital Account with Lauren Lyster, featuring futures industry veteran guest, Mark Melin. Ms. Lyster pulls no punches in the opener:

Has the case really gone cold? Or, are those who are in charge of the investigation, the “regulators” and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions–and, ultimately–the recovery of stolen customer money?

We wish that MF Global were just a one-off affair–a bad apple, if you will. Unfortunately, it seems more likely to us that this is another milestone in the history of what we see as criminality, which has swept through the financial services industry, like some sort of Medieval Black Plague–the Black Death for capital formation. It seems the only time people are held accountable anymore, is when they commit crimes that affect the super-rich.

Bernie Madoff is a prime example…Madoff is securely behind bars, but Jon “Teflon Don” Corzine is busy ordering carmel-Frappuchinos at the local Starbucks as he goes to shop for office space in New York…bothered only by the low din of discontent emanating from the blogosphere (and shows like this, Capital Account). What a nuiscance we must be to the new God-fellas of Wall Street…

Nuiscance, indeed, to which we hope we are part. Here is a link to the entire episode, in which Ms. Lyster and Mr. Melin cover the following salient points, all pointing to a criminal intent to commit fraud, as well as the role of regulators and investigators:

Why was the MF Global back office cleared out with three top personnel allowed to leave, just as the firm was exeriencing its most serious liquidity (ahem solvency) crisis in its soon-to-be-terminated existence?

Why were C-level executives, far from being sequestered by investigators and being placed in an information silo, allowed to run the company for six weeks (prior to Mr. Freeh being installed as Trustee of the Holdings company)?

Why did Lois Freeh wait until early March to have MF Global Holdings USA declare bankruptcy, the very entity that retained the few remaining executives and employees and may have been cash-rich?

Why did Federal criminal investigators fail to so much as question Mr. Corzine nearly six months after the crime?

Why were large counterparties paid with wire transfers, when requests from lowly customers for wires were converted to checks (which ultimately bounced)? “Sloppy is when you don’t do things consistently. Sending all checks to customers and all wires to counterparties–that’s consistent.” See here for details published by John Roe of the Commodity Customer Coalition.

Why were the final days characterized as so “chaotic” when a properly programmed iPhone or Android smart phone (sorry, RIMM) should have been able to handle what amounts to maybe a few dozen megabytes of transfer instructions?

Just what were the details surrounding the successful lobbying effort by top level MF Global execs that effectively postponed reforms on rules that would limit use of customer funds (coincidentally, or not perhaps, just ahead of a $325 million bond offering by MF Global)? [For more details, see our prior piece from this week, which includes exclusive CFTC emails on the issue.]

Even Chuck Grassley, the sponsor of the now-widely criticized 2005 bankruptcy reform act, has stated, “The bankruptcy laws are written to ensure that company executives who were involved in the demise of a company because of fraud or mismanagement shouldn’t be eligible for bonuses,” Mr. Grassley said.

More broadly, MF Global customers have an absolute right to clawback of questionable margin payments and asset transfers from the broker unit that occurred in the weeks leading up to the firm’s demise because there was a clear pattern of intent to deceive investors and customers alike–from manipulating regulators and the regulatory process to changing business practices in the final wee–all of which ensured that customers would be last in line for the remaining morsels of the MF Global carcass. (And, as we have pointed out since early November, 2011, the very nature of the Corzine Trade from Day One was such that all the risk was put in the customer brokerage house, while profits were diverted to an offshore business unit).

“Fraud” is the operative word here. There is no dispute that the Commodity Exchange Act (sic, the law) has been broken, but until fraud is investigated, customers are at the mercy of a very fuzzy and opaque legal process.

It’s time for Congress to put pressure on those in charge of this investigation and oversight to break their own glass of silence and dare them to utter the magic “F” word.

To view the full video interview with Lauren Lyster and Mark Melin click here.

Bob English is the author of this article, the opinions expressed are entirely his own. View his work at:

http://english.economicpolicyjournal.com/2012/04/mf-global-roundup-so-far-great-escape.html

3/10/2012

What can we say about corn basis May? Not a lot.

The market has been a real “yawner” and caught in trading range since mid December based on a longer term analysis when it bottomed at $5.8550. Since January we’ve had a long term buy signal, but the market is currently trapped between $6.67 and $5.99.

On a short term analysis we may be near a new buy signal as the market closed at $6.45. It is possible long and short term signals are converging towards a confirmation, however we need to see this market break above $6.70 to confirm a buy signal.

On a short-term basis $6.98 is our first resistance level, if $6.70 is broken. Somewhere between $7.14 and $7.31 would be the second resistance level. Support can be found in the $6.30 to $6.10 range.

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Copyright ©2012 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com www.shorecapmgmt.com Mark Shore 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 course.

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.

Opinion:

Someone asked a pointed question this weekend:

“Does the futures industry hate Jon Corzine?”

While no one person can speak for a diverse industry, it might not be true to generalize the futures and options industry hates Jon Corzine.  Many, including myself, don’t personally know the man.

What is known is that an industry has been brought to the brink and a serious test of its backbone is underway.  Many of our business associates and friends have been dramatically impacted by actions from someone known as an arrogant individual used to getting his way most of the time, a man who demonstrated a complete disregard for MF Global and the industry in which it operated.

Not only did Mr. Corzine expect special treatment, he was surprised when he didn’t get it.  Here is a man that is said to have engineered the toppling of a CFTC regulator in 1998 over the issue of transparency.  This lack of transparency and disregard for regulators are career trait many practitioners in the futures and options industry couldn’t get away with.  Why should a man who brought an industry to its brink and had a history of complete disregard for regulators and transparency be given special treatment?

As such, it’s time for the tough questions to be asked because we are getting close to the point where if this were regulators would descend on a mid-sized FCM or IB with the force of a predator drone attacking a domestic terrorist. (Mr. Corzine, to clarify in the previous sentence “IB” stands for “Introducing Broker,” not “Investment Banker.”)

Here are key points that have emerged since his compelling testimony:

As Futures Magazine’s Dan Collins aptly noted in an article after Corzine’s initial testimony, the most significant information to come out of the testimony didn’t come from the “lawyered up” Corzine statements, but rather from the Chicago Mercantile Exchange (CME).  The CME essentially established what had previously been undisclosed by Mr. Corzine:  Funds were improperly transferred at 2:00 AM Monday morning.

The question is: who is responsible for that transfer?  To think that Mr. Corzine or the top two or three officials at the top of MF Global were not aware of the transfer of $1.2 billion out of customer segregated funds might be similar to belief in the tooth fairy.

When the transfer occurred, how could it be that those “pushing the button” not be aware they were violating CFTC fund segregation rules?  Or perhaps with a history of ignoring regulation, those “pushing the button” might have assumed they would be accorded special treatment.

Are regulators expected to prevent such an action, or is their role simply to recognize how the regulation works and then enforce strict rules?

These questions should be answered in the context of a larger picture being painted.  Here is what likely happened, pointing to the questions to which Mr. Corzine should be responsible to answer.

(Note: what follows is highly speculative and opinionated)

In the chaos of the early-morning realization liquidity was gone, a decision was made to move segregated funds.  In almost any imaginable case inside an FCM, the only ones with access and authority to move such a large amount of capital at 2 AM was a high level official.  At minimum, such activity would likely have been reported to top officials at MF Global early Monday morning as mid-level and high-level officials would have been alerted to the transfer through even the most basic FCM security process.  MF Global was not a “basic” FCM and had a more detailed process in place, leading to a question:  Why did it take so long for this activity to get reported?

And here is where another inconsistency appears:

Upon entering the brokerage, it was said the “account records were a mess.”  Really?  Is this disorganization consistent or did it occur only after the transfer of capital out of segregated funds?   Based on subjective observations, those close to the industry might find such disorganization inconsistent.  Does the disorganization of critical account documents point to attempts to hide the paper trail that was clearly present at MF Global before funds were missing?

But perhaps most inconsistent are Mr. Corzine’s own statements.

In a New York Times article started to uncover the critical points:

“In testimony on Capitol Hill on Thursday, Mr. Corzine only added to the mystery. He said that transferring customer funds was ‘a complex process’ and, asked who could execute such a transfer, said ‘I wouldn’t know probably who that person is.’”

In this testimony Corzine is making two potentially inaccurate statements.

First, he claims the process is “complex.”  Ok, taking this at face value “complex” likely implies a number of people associated with such a transfer and a process that would also trigger alarm bells.  When were the alarms reported to regulators?

But more to the point, is the process really that complex for Mr. Corzine or his top deputies?  In all likelihood there were potentially a handful of those within the FCM that had the ability to authorize a large capital transfer out of segregated funds, including Mr. Corzine.  In many cases moving such capital out of segregated funds cannot be authorized by one individual, but might require a counter-signature.
Is Mr. Corzine seriously claiming that he doesn’t know the people or the process?  One can only imagine the day after the transfer of segregated funds was discovered, Mr. Corzine and top brokerage firm executives were notified of the transfer by the internal fraud alarm system.  Most certainly at that point if Mr. Corzine were un-involved he would have investigated the people and the process.  Remember, this is an individual who the New York Times noted in an article had a keen insight for remembering names.

Mr. Corzine expecting Congress and regulators to believe he doesn’t know the people or process involved in transferring $1.2 billion out of segregated funds seems entirely inconsistent.  But then the only real consistency in this story might be the special treatment Mr. Corzine typically received.

Mark H. Melin is author / editor of three books, including High Performance Managed Futures (Wiley, 2010) and was an adjunct instructor in managed futures at Northwestern University.  Follow him on Twitter @MarkMelin or visit www.Go2ManagedFutures.com for additional information.

Risk Disclosure: Managed futures can be a volatile investment and is not appropriate for all investors.  Past performance is not indicative of future results.

The opinions expressed in this article are those of the author, may not have considered all risk factors and may not be appropriate for all investors.