A pair of keynote addresses kicked off day two of CBOE's 29th annual Risk Management Conference. The first was from William Brodsky, Chairman and CEO of CBOE. Brodsky spoke of recent developments in Washington, including the outlook for the SEC under new Chairman-nominee Mary Jo White. During the CBOE update, Brodsky spoke of the significance of 2013: CBOE's 40th anniversary, the 30th anniversary of CBOE's development of index options and the 20th anniversary of CBOE's creation of the VIX.
John Coates, Senior Research Fellow in Neuroscience and Finance, University of Cambridge, followed Brodsky to the podium. A former trader, Coates now studies the biology of trading behavior. Financial decision-making is not a purely cognitive activity. The brain is most sensitive to the unexpected and that first information has a profound impact on a body's physiology. Humans are built to crave risk.
Five panelists highlighted "Trends in Institutional Options Usage." The current environment for insurers is transitional. Their approach to risk management has changed as products have become more sophisticated. The group noted new entrants to the marketplace, cross-asset class opportunities and strategies to take advantage of structural differences in the market as some of the major trends.
After lunch, the Intellectual Property Exchange (IPXI) provided an overview of their innovative market concept. IPXI is the world's first financial exchange for licensing and trading intellectual property rights. It is estimated that IP assets are worth $9.2 trillion and more than $1 trillion is invested in the U.S. each year for the creation of intangible assets.
The afternoon concluded with four breakout sessions. The "Using Short Options Positions to Manage and Lower Volatility of an Equity Portfolio" panel included the pros and cons of using index options versus individual equity options and creating a portfolio of staggered and laddered option positions to mitigate pin risk and lower overall volatility.
The "Alpha Opportunities in Equity Derivatives Created by Macro Uncertainty" session explored the many risk premiums that can be turned into uncorrelated alpha sources. One favorite source is VIX. The "Left and Right Tail Risk Hedging and Carry" session addressed leveraging the main portfolio as a way to mitigate the negative carry of tail hedging. The "Realized Variance Strategies and Implementation" track highlighted the CFE's new S&P 500 variance future contract and explored trading variance versus volatility.
Tuesday will be highlighted by a morning keynote presentation from Dean Curnutt, CEO, Macro Risk Advisors.
Photo of the Day
Lunch in the Palm Courtyard.
Tweet of the Day
"Finishing up the last presentation of the day, the amount of information thrown at me today has been incredible. #CBOERMC" @RussellRhoads.
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The three most discussed topics beyond the sessions today at RMC…
- Coates keynote and physiology of trading.
- Expansion of VIX futures trading.
- Option selling strategies.
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