JLN Options: A Q&A With CBOE’s CEO Brodsky and COO Tilly

Jan 19, 2012

Lead Stories

A Q&A With CBOE’s CEO Brodsky and COO Tilly
By Peter Chapman, Trader’s Magazine
Chicago Board Options Exchange chairman and chief executive officer Bill Brodsky and president and chief operating officer Ed Tilly broke bread with the New York City press corps in January in order to update the scribes on the exchange operator’s initiatives. Reporters learned that a quarter of CBOE’s volume came from proprietary products, specifically its index options, but over half its profits. CBOE’s year-old C2 exchange was achieving the company’s goals, the executives said, trading 228,000 contracts per day in last year’s fourth quarter, but they still increased its rebate in January. Traders Magazine presents a slice of the Q&A session.

Stocks Gain on Bank Profits, U.S. Economy as Euro Climbs on Bond Auctions
By Stephen Kirkland and Rita Nazareth, Bloomberg
U.S. stocks rose for a third day as Bank of America Corp. (BAC) posted a profit and jobless claims slid, while European equities and the euro climbed as French and Spanish borrowing costs decreased at auctions…
The S&P 500 gained 4 percent this year through yesterday, the best start to a year since 1987, as U.S. economic reports and speculation that China will loosen monetary policy outweighed concern that downgrades for European nations would worsen the debt crisis.
The Chicago Board Options Exchange Volatility Index, the benchmark gauge of U.S. options prices known as the VIX (VIX), dipped below 20 for the first time since July amid lower demand for protection against losses in equities.

Buyer’s Market for Options
By: Lori Spechler, CNBC
Despite nagging concerns about the euro zone, major stock indices — S&P 500, Nasdaq, Russell 2000 — are off to a strong start this year, while volatility has been falling.
And as volatility falls, so do those sky high option premiums that were more common in 2011…
“The trade is to really get out there and make a statement and buy volatility at these levels,” says Alex Panagiotidis, managing director of Sterne Agee Institutional Equity Options.

Short-Term Options Drove US-Listed Options to Record Levels in 2011
By Martin Rabkin, RiskCenter
Short-term options represent one of the most successful products launched by options exchanges in recent years, with demand from retail and institutional investors driving growth, says TABB Group in new research published yesterday, “Accelerated Expirations: The Growing Relevance of Short-term Options.”
“However, as more names are added to the list, investor interest and volume will rise”
According to TABB, short-term options (STOs) were a significant factor behind record options volume in 2011 with STOs accounting for 8.3% of the total 4.6 billion contracts traded for the year. Short-term options accounted for a peak 11.7% of total volume in October 2011, when volume reached 45.7 million contracts. Comparatively, one year earlier in October 2010, STOs trading volume totaled 20.8 million contracts.


The World Federation of Exchanges Publishes 2011 Market Highlights
Press Release via The Wall Street Journal
Equity volumes in 2011 remained stable despite a fall in market capitalization, while derivatives, bonds, ETFs, and securitized derivatives continued to grow strongly, according to figures released today by the World Federation of Exchanges (WFE).
WFE statistics are culled from WFE member exchanges, which continued to increase their listings and diversify their product offerings in 2011. Specific 2011 highlights from WFE are as follows:

Turkey: Going forward costs brokers and exchanges dear
By Nick Lord, Euromoney
TurkDex introduces exchange-traded options; ISE [Istanbul Stock Exchange] head steps down
Turkey continues to open up to derivatives and structured products while much of Europe clamps down on them.
Last year saw the introduction of warrants and ETFs traded on the Istanbul Stock Exchange (ISE). This year will see the introduction of exchange-traded options contracts on TurkDex, the derivatives exchange based in Izmir.
Ilhami Koc, CEO of Is Investment Bank, has stated that the next stage in Turkey’s financial development will be the deepening of the country’s derivatives markets.


Using Option Premiums To Gauge Risk
Seeking Alpha
As someone who actively traded the markets during the 2008/2009 financial crisis, I have many memories from that time period that I doubt I’ll ever forget. One observation I made then has to do with the put premiums on the SPDR S&P 500 (SPY) and PowerShares QQQ Trust (QQQ) in late September 2008, just prior to the bottom falling out of the markets. At the time, the VIX was quite elevated but nowhere near the incredible heights it would soon reach, yet puts on the SPY and QQQ were already trading at “you’ve got to be kidding me” prices. At the time, it seemed to me as if the market makers were almost daring people to sell the puts. Way out-of-the-money puts expiring just a few weeks later in October were trading at premiums normally reserved for options expiring many months later. On the flip side, it seemed crazy to purchase the puts betting on further declines in the major market indices at the prices they were being offered for. Yet, that was exactly what an investor wanting to make money should have done.

Using Options To Take Advantage Of Volatility
By Charles Brokop, Seeking Alpha
When I explain how someone can generate very solid returns with low volatility all while having their money in a money market or other cash vehicle, they usually look at me like a dog that heard a strange noise and give me the tilted head look. The investment discipline does take a while to understand and there are some moving parts involved; however, with the recent high volatility in the market over the past few years, learning this may be a valued strategy. This is an investment strategy that offers strong performance whether the market goes up, down, or stays relatively even, called an ‘Absolute Return Strategy.’ The transactions can also be done in most major brokerage accounts which are another benefit.

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