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Buying and holding volatility usually hurts; then came 2018





NEW YORK (Reuters) – The big uptick in stock market gyrations this year has made a surprise winner out of a trade that has rarely delivered a win – buying and holding volatility.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 11, 2018. REUTERS/Brendan McDermid

Stock market ructions over the last decade have been few and fleeting, requiring great feats of timing to generate profits from volatility buying.

Not so this year.

Frequent bursts of market gyrations have kept things lively in the volatility space and has made betting on enduring turmoil hugely profitable.

While the S&P 500 .SPX is getting crushed to a degree not seen since the financial crisis a decade ago – the index is down 19 percent in the last three months – a trader who took a flyer on volatility early this year could be pocketing a profit of 70 percent or more.

“The thing that worked in the volatility space this year is the thing that almost never works – just buy and hold volatility,” said Matt Thompson, co-head of commodity trading adviser Typhon Capital Plc’s volatility group in Chicago.

Since volatility usually rises when stocks fall, owning volatility is a form of insurance and just like any other insurance there is a cost attached to it.

“Usually it costs a lot to own volatility,” said Jim Carney, chief executive officer at New York-based hedge fund Parplus Partners.

Most volatility instruments, including options, futures and exchange-traded notes (ETNs), lose value rapidly when stocks are calm or rising.

But with the stock market in the grips of almost daily wild swings, for the first time in years it has paid to own volatility, said Carney.

One example of how well that trade has worked is the iPath S&P 500 VIX Short-Term Futures ETN (VXX.P), which is up about 72 percent this year. The ETN tracks the performance of the Cboe Volatility Index .VIX, a widely followed options-based barometer of expected near-term volatility for stocks.

VXX follows an index that tracks the price of two near-term VIX futures and seeks to maintain a constant one-month exposure to volatility by repeatedly selling first-month futures to buy second-month contracts.

“When the front month VIX future is below the second month there’s a huge cost to owning the product, but now with the front month around the same level of the second month, or above it, there is no cost,” said Carney.

Under normal conditions, first-month VIX futures are priced lower than second-month contracts as uncertainty about how stocks will fare leads traders to boost the volatility embedded in further-out expirations.

That is a problem for VXX, which essentially is constantly selling the relatively cheaper first-month contract and buying the more expensive second-month contract.

This constant erosion in value has caused VXX to hemorrhage money like few other products. A $100,000 invested in VXX at its inception in 2009 would be worth about $40 now.

But during times of market stress, such as now, first-month contracts become even more pricy than contracts with expirations further out. That gives VXX a fillip.

The VXX is on pace this year to finish up for the first time in its decade-long existence.


VXX’s success this year bodes ill for the overall stock market. While the ETN has only been around since 2009, estimating how the index might have fared in previous years paints a bleak picture for the near-term outlook for U.S. stocks.

“It wasn’t trading then, but 2007 and 2008 would have been up years,” said Vance Harwood, who runs the alternative investment website Six Figure Investing and has studied VIX products extensively.

Harwood estimates that VXX would have gained about 40 percent in 2007 and more than doubled in price in 2008, as the stock market got hit by the global financial crisis.

Others also see the similarity.

“This year looks a lot like 2007,” said Typhon’s Thompson.

“I am not predicting a 2008 next year but we had a pretty fundamental transition this year from the old low volatility regime to the new higher volatility regime,” Thompson said.

Regardless of whether VXX’s strong performance is a portent of trouble for stocks next year, higher levels of daily stock gyrations should draw more investors to the ETN, analysts said.

“With volatility in the 20s for the VIX, I think it is an excellent product to be long,” said Parplus’ Carney.

Presently, more than 50 million VXX shares change hands every day and the ETN has about $800 million in assets under management.

“I wouldn’t be surprised to see it bump up into the $1 billion to $1.5 billion range,” said Harwood.

Reporting by Saqib Iqbal Ahmed in New York; Editing by Jeffrey Benkoe


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Future of Ottawa: Coffee with Francis Bueckert





Francis Bueckert: When it comes to the current landscape of coffee-roasting companies and independent cafes in Ottawa, I think we are at a really interesting moment in time. There are more local roasters that are doing artisanal small-batch production—with more attention to the quality and origin of the beans.

With larger corporations such as Starbucks closing locations, it has opened a bit of space for local players to grow. We have been lucky to work with many folks in the coffee-roasting community, and we have found that there is a willingness to collaborate among different coffee roasters. For example, when Cloudforest started back in 2014, we were roasting our coffee at Happy Goat and it was the expertise of their head roaster Hans that helped me learn how to roast. Other companies such as Brown Bag Coffee have also lent a hand when we needed extra roasting capacity. There are others, such as Lulo, Mighty Valley Coffee, Bluebarn, The Artery, and Little Victories that are also part of the growing local coffee community. It’s small roasters like these who have shown me what a coffee community can look like, and that we can help to elevate each other, rather than being locked in competition.

If you care to make a prediction… What’s happening to the local café industry in 2021?

We believe that there is hope and that 2021 can be a big pivot year for small roasters and cafes.

This year will not be ideal from a business point of view. However, it could create a shift in people’s attitude toward where they get their coffee. We are holding out hope that people will support the roasters and cafes that are local to help them economically survive what is in all reality a very difficult time.

It all depends on where consumers decide to go this year. People are starting to recognize that supporting large corporations at this moment will be at the cost of the local roasters and cafes. There is the growing realization that a future where there is only Amazon, Walmart, and Starbucks would be pretty bleak. So we have an opportunity this year to support the kind of local businesses that we want to see thrive.

In your wildest dreams, what will the landscape for local coffee roasters and cafés look like in your lifetime?

In my wildest dreams, all of the coffee roasters and cafés would be locally owned and independent. They would all be focused on direct trade and artisanal coffee. Each different coffee roaster and café would know exactly where their coffee came from. Ideally, each company would be a partnership between the farmers who grow the beans and the people here selling them. There would be a focus on how to cooperate and collaborate with the farmers in the countries of origin to share the benefits around. We would all work together and share orders of cups, lids, and other packaging so that we could get better bulk pricing. In this way, we would make our local coffee community so efficient that the large corporate coffee companies wouldn’t even be able to compete.

We would also like to see people use coffee as a way to create social good. For example, we started Cloudforest as a way of helping support farmers in Ecuador who were taking a stand against large mining companies. This remote community stood up to protect their environment, so that they could have clean drinking water and soil for the next generation. They started an organic coffee cooperative to help show that there are other models of development, and we are doing our part year after year to help support their vision. They have a vision of development that does not include mass deforestation and contamination, and organic coffee is a key (among others) to show that another way forward is possible.

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Special events in the Ottawa Valley dominate annual OVTA tourism awards





The Ottawa Valley Tourist Association hopes that its annual tourism awards will provide a little sunshine during what is a dark time for local tourism operators because of the pandemic.

The Ottawa Valley Tourism Awards are presented annually by the Ottawa Valley Tourist Association (OVTA) to individuals, businesses, and events that recognize the importance of working together for the growth of the local tourism industry, as well as offering exceptional visitor experiences.

“After a year that saw a lot of businesses in the hospitality and tourism industry being challenged like never before, the annual Ottawa Valley Tourism Awards represent a bit of light on the horizon” said Chris Hinsperger, co-owner of the Bonnechere Caves.

The Ottawa Valley Tourist Association’s (OVTA) Awards Committee co-chairpersons, Meghan James and Chris Hinsperger, said they were very pleased with the recent nominations received, especially in the Special Events category. Submissions were received for The Farm to Fork Dinner Series at the Whitewater Inn; Light up the Valley; The Eganville Curling Clubs’ Rock the Rings; The Ontario Festival of Small Halls ; The Bonnechere Caves On-line Underground Concert Series; The Opeongo Nordic Ski Clubs’ Ski Loppet; The Tour de Bonnechere — Ghost de Tour 2020; and The Bonnechere Caves Rock ‘n Roll Parking Lot Picnic.

“During a time when communities were challenged, it is nice to see that people still made an effort to get together and celebrate, albeit under certain conditions. It just shows the creativity and resiliency of our tourism Community here in the valley” said Meghan James, director of sales at the Pembroke Best Western.

There are three Award categories: The Marilyn Alexander Tourism Champion Award, The Business of Distinction and The Special Event of the Year.

Hinsperger, is excited about this year’s awards.

“During this pandemic the hospitality and tourism industry was the first to be hit, was the hardest hit and will be the last of our industries to fully recover. As Valley entrepreneurs we owe it to ourselves, to our businesses and to our communities to be an active part of that recovery. Our livelihood and economic recovery depends on our efforts. And we will get back to welcoming people from all over the world to share a little bit of the place we are privileged to call home. This awards process leaves myself and others fully optimistic about our positive outcomes.”

Award winners will be announced at the Ottawa Valley Tourist Association’s virtual annual general meeting on Monday, May 31.

The OVTA is the destination marketing organization for the Upper Ottawa Valley and proudly represents more than 200 tourism businesses, comprised of attractions and outfitters, accommodation, food, beverage and retail establishments, artists and galleries, municipalities, as well as media and industry suppliers. The OVTA is supported by the County of Renfrew, Renfrew County municipalities and the City of Pembroke.

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Future of Ottawa: Farming with Jeremy Colbeck





Jeremy Colbeck: Well first, let’s talk about what we mean by farming. Although farms, and farming as an occupation, are in decline across Canada, they are still a major part of our rural landscape. That’s even more true for a strange city like Ottawa which includes a LOT of rural areas and whose urban boundary takes, what, three hours to cross? About 40 per cent of the rural land in Ottawa is farmland. Most of that farming is corn and soybean cash-crop, as well as some dairy and livestock farming. That’s mostly conventional farming (the kind that is profitable but not exactly where you take your kids on a Saturday).

There are also a lot of agri-tourism businesses in Ottawa, which give you that oh-so-good Saturday spot for family donkey-petting and apple-picking. And it’s totally understandable from a business perspective, but sometimes surprising to find out, that even though they grow some of the Christmas trees they sell, they might also be reselling some that come from much larger farms far away. The farmland around Ottawa is also inflated in price because of its proximity to the city, where it is in demand by would-be hobby farmers—folks who want to do some farming on their property in their spare time but make their money (to subsidize their small-scale farming habit) elsewhere. Unfortunately, many of these properties will have large mansions built on them, which will then make them completely unaffordable for the average farmer

There’s also a segment of small-to-medium-sized Ottawa farms that grow “premium” (artisanal, unique, extra-fresh, ecologically- or organically-grown etc…) products that they sell directly to local eaters via farmers’ markets or other direct marketing channels, including on-farm stores and farm stands. That’s where BeetBox fits in.

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