Why Are Margins Raised (Or Lowered)?:
Why Are Margins Raised (Or Lowered)? Significant increase or decrease in the price of the commodity Significant increase or decrease in the volatility of the commodity Quotes from Kim Taylor, president of CME Clearing, in the Wall Street Journal "I don't agree that the margin change was a trigger for changes in the market," "The market is well tuned so that if there's a market move that approaches or exceeds our volatility limits" participants know to expect an increase in margin requirements, she said. "We try to make changes in a way that we can telegraph to the market, so that participants have notice. We try to be routine and predictable and provide no surprises ," "When market conditions become more volatile we would increase margins in anticipation of that, and when volatility decreases we don't want to create unnecessary capital costs," I was VERY surprised by the last few increases… here’s why
Plotting Volatility versus Price:
Plotting Volatility versus Price In order to compare apples to apples, I have compared the CBOE ( Chicago Board Options Exchange ) Silver ETF Volatility Index - VXSLV:CBO which measures volativity of the SLV iShares Silver Trust to the closing price of the SLV itself. The following graph shows this comparison with the recent margin increases
Margins versus Price:
Margins versus Price Looking at the recent history (prior to the last increases), there seemed to be a target level around 5.25% (+/- 0.5%). Between April 2010 and March 2011, there were 7 changes resulting in a new margin % in that range. For the purpose of this analysis, the Hedge/Members margin requirements were used In the following slide, notice how the dual increase announced on May 4 th significantly exceeded that range
Recent Increases:
Recent Increases
You Be The Judge:
You Be The Judge Does it not appear that the last two announcements (with three increases) actually INCREASED volatility? Do those increases not go outside the norm for historical Margin %? Do those increases not come as a “surprise” to anyone that might follow this type of logic?
Debate Away!!:
Debate Away!! This is all food for thought Special thanks to endlessmountain, BrotherJohn, silverfuturist and all the others whom make watching this market fun Please feel free to pick this presentation apart at your will One of these days, I will figure out how to make an actual video Cheers, Shawn
Slide 9:
Thanks for watching!!!