JLN Options: Banks, VIX Merit ‘Positive Attitude’ on Stocks: Chart of the Day

Feb 3, 2012

Lead Stories

Banks, VIX Merit ‘Positive Attitude’ on Stocks: Chart of the Day
Bloomberg
“A positive attitude toward equity investing is now in order” because U.S. bank stocks are doing relatively well and volatility is fading, according to Donald Coxe, a strategy adviser to Bank of Montreal.
The CHART OF THE DAY combines three indicators that Coxe used to draw this conclusion in his latest monthly report. The top panel tracks the ratios of two KBW Inc. bank indexes — one for the largest U.S. lenders and the other for regional banks — to the Standard & Poor’s 500 Index. The bottom panel depicts the Chicago Board Options Exchange Volatility Index, or the VIX.
http://jlne.ws/z3mNyk

Pisani: VIX Volatility Index Flashing All-Clear — or Warning Sign?
CNBC.com Market News
The CBOE Volatility Index (VIX) closed below 18 for the first time since July 22, 2011. Sounds like the markets aren’t too worried about anything, right?
Hmm.
The VIX (which measures implied volatility, how much the market might move over the next 30 days) is at 17.98. The historic volatility (how much the market has actually moved over the last 21 trading days) is at 8.5, according to VolX. That is unusual, says Mark Sebastian at Option Pit, a consulting firm that helps hedge funds construct options trades.
http://jlne.ws/yUXnla

CME Group Plans Guarantee Fund

WSJ.com
CME Group Inc. launched a fresh effort to rebuild market confidence damaged by the collapse of MF Global Holdings Ltd., creating a $100 million insurance fund to protect farmers and ranchers. The Chicago-based exchange operator was among those responsible for overseeing MF Global and faced widespread criticism from clients and lawmakers when the brokerage failed. Funds in customer accounts have been frozen amid a probe of the collapse, and investigators are still looking for an estimated $1.2 billion. CME’s establishment of the fund, which will be a permanent fixture of its markets, underscores the tricky balance the company must maintain between running a profitable business and regulating major participants of its markets.
http://jlne.ws/ylr6p2

CME Jumps 6% After Moves To Limit MF Global Fallout
By Murray Coleman, Focus on Funds – Barrons.com
Shares of CME Group (CME) are trading up more than 6% Thursday after the exhange operator moved to overcome fallout from MF Global’s (MFGLQ) failure and attract more commodities related business. The world’s largest futures market operator says it’ll put into place a new $100 million guarantee fund for farmers and ranchers. It also plans to provide up to $25,000 per account if customers suffer losses from the insolvency of a CME clearinghouse member or other market participant. “The CME is scrambling to get rid of the black eye left from the MF Global fiasco,” one broker told Dow Jones Newswires.
http://jlne.ws/zRkXCv

U.S. Stock Options With Biggest Changes in Implied Volatility
Bloomberg
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security’s price.
http://jlne.ws/zhTTMG

Exchanges

Credit-default-swap futures seen as inevitable
MarketWatch
The technical issues still to be resolved are not trivial. One, for example, is how the futures contract would be settled, or resolved, if one of the underlying bonds defaulted. The current thinking is to have a contract that trades like a future on an exchange, but settles like a swap, which in the case of physical settlement would mean one party delivering an actively traded CDX index contract at maturity.
To be sure, earlier efforts to list credit derivatives struggled. The Chicago Board Options Exchange last year launched listed credit-default options–something it had tried years earlier–but despite a few trades being executed, these have not yet taken off in a big way. Eurex AG tried listed CDS several years ago, but also met with little success.
http://jlne.ws/x0KQSB

Technology

Barclays revamps its algorithms and smart order router to bring in business
Traders Magazine, February 2012
John D’Antona Jr.
Keep it simple. That is the mantra at Barclays Capital as it emerges from a yearlong revamp of its electronic trading products and desk. And with this new simplicity, the bank hopes to increase profits and raise its profile in the equities trading business. Barclays is employing a three-pronged strategy to achieve its goal of moving up from the middle of the pack and into the top echelon of broker-dealers, say Bill Bell, head of electronic distribution Americas, and Bill White, head of electronic trading. The strategy is to deploy its smart order router globally, grow its dark pool Barclays LX and simplify its algo offerings.
“We wanted to make our team global-take the solid U.S. experience that our clients were getting and make it universal,” Bell said.
http://jlne.ws/Auwm9W

ETFs Are Going BATS … and Why You Should Care!
ETF Daily News
Ron Rowland: The ETF marketplace changed last month. You didn’t notice? Don’t worry, you’re not alone. Today I’ll tell you all about it. You already know that “exchange traded funds” trade on an exchange. That’s what distinguishes them from old-fashioned mutual funds. But what exchange trades them, and where is it?
For some new iShares, the answer isn’t New York or Chicago. Their trading hub is Lenexa, Kansas. Let me explain …
Exchange Floors No Longer Needed
For most people, the term “stock exchange” brings to mind images of noisy rooms filled with men in colorful jackets, waving their arms and making cryptic hand motions. At one time, this is exactly how trading got done — and the apparent chaos was actually very efficient. But now, even the nimblest floor traders can’t compete with the speed and accuracy of modern computers.
An “exchange” isn’t a physical place anymore. It’s a mechanism by which buyers and sellers find each other. Nowadays, it happens in milliseconds.
http://jlne.ws/zTJmga

Strategy

February 3, 2012: Russell 2000 attracts big call spreads
The Russell 2000 Fund gapped higher at the open this morning, and some big call spreads have helped drive its option volume over 270,000 contracts–more than its entire daily average–less than an hour into the session.
The IWM is up 1.9 percent to trade at $82.69 after gapping to its highest level since July 26. The fund hasn’t closed below its 10-day moving average since Dec. 16. The trend higher has been accelerating and the curve steepening.
http://jlne.ws/xhRGfw

STOCKS NEWS US-EEM ETF big put trades appear to be hedge
XE.com
More than a half million puts have traded on the iShares MSCI Emerging Markets through midday on Friday, Trade Alert data showed. Some option investors appear e
ager to protect their equity positions in emerging markets against any steep, unexpected drop in asset values. The fund tracks the equity performance of emerging markets such as Brazil, Russia, India and China. The shares rose 62 cents to $43.78 and ‘have rallied 15.4 percent year-to-date, amid diminishing concerns about the impact to the global economy from the European debt mess,’ said WhatsTrading.com options strategist Frederic Ruffy.
http://jlne.ws/yHUnSr

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