JLN Options: CBOE Eyes New Futures On Equities, Bond Yields, Commodities

Jan 11, 2012

Lead Stories

CBOE Eyes New Futures On Equities, Bond Yields, Commodities
By Jacob Bunge, Of DOW JONES NEWSWIRES
The parent of the Chicago Board Options Exchange is exploring ways to broaden its small U.S. futures market with contracts linked to stocks, bond yields and commodities, according to an executive.
CBOE Holdings Inc. (CBOE), which runs the largest U.S. options exchange by contract volume, is looking for ways to bulk up in proprietary futures contracts that carry higher trading fees than stock options.
The eight-year-old CBOE Futures Exchange does most of its business in futures linked to the CBOE Volatility Index, or VIX, the so-called “fear gauge” that reflects anticipated gyrations in the Standard & Poor’s 500 stock index.
Any new contracts tied to stocks, interest rates and commodities launched on the CBOE Futures Exchange are unlikely to be copycat versions of products already offered by larger futures market operators like CME Group Inc. (CME) and IntercontinentalExchange Inc. (ICE), said James Lubin, managing director of the platform for CBOE.
http://jlne.ws/AsY6Tx

NYSE Euronext-Deutsche Borse Lobbying to Save Deal

As European antitrust regulators signal they would recommend blocking the $9 billion deal, NYSE Euronext and Deutsche Borse have launched a lobbying effort in Europe.
By Reuters January 11, 2012
NEW YORK/FRANKFURT – Deutsche Boerse and NYSE Euronext have launched a lobbying effort in Europe to save their $9 billion merger, as European antitrust regulators made it clear they would recommend the deal be blocked, a source familiar with the situation said on Tuesday. European Commission antitrust chief Joaquin Almunia and the case team plan to make the recommendation to the so-called college of 27 commissioners, who are expected to meet early next month to decide on the fate of the deal, the source said.
The antitrust staff’s move, which NYSE and Deutsche Boerse had been expecting since at least late last month, places the deal to create the world’s largest exchange operator on the brink of collapse.
http://jlne.ws/AAGZUx
Five possible options for NYSE-Deutsche Boerse
By Michelle Price, MarketWatch
The news that European Union regulators have preliminarily rejected the proposed landmark merger between NYSE Euronext /quotes/zigman/421745/quotes/nls/nyx NYX -0.79% and Deutsche Boerse AG , despite a range of remedy packages, leaves the two exchanges with few options. The European trading industry had widely expected the deal to be rejected amid fears that the combination of the two exchanges’ formidable derivatives franchises would create a monopoly in European derivatives trading.
Although the exchanges have offered a range of remedies, including spinning off some of their overlapping contracts and partially opening up Deutsche Boerse’s clearing house, these measures have so-far failed to appease Europe’s antitrust department, known as DG Competition, according to reports.
http://jlne.ws/xblf0d

Disaster Puts Options Are Suddenly Popular
By STEVEN M. SEARS, Barrons.com
Investors are actively buying bearish options even as U.S. stocks approach highs that haven’t been seen since last summer.
As much is made of the stock market’s recent strength, much hedging action is suddenly occurring in the options market and out of the sight of most investors and market pundits.  Investors started Wednesday by buying bundles of puts on the Standard & Poor’s 500 index that would increase in value if the index, now at about 1286, fell to 1200 or lower before March.  An 86-point drop on the S&P 500 index is the equivalent of about an 800-point fall of the Dow Jones Industrial Average.
The hedging action suggests that major investors are buying disaster insurance in case the old hobgoblins of 2011, including Europe’s economic crisis, and a return of U.S. economy weakness, take center stage.   
http://jlne.ws/AaOmmk

Options Brace for Euro Rebound Versus Dollar After Drop: Chart of the Day
By Liz Capo McCormick, Bloomberg
Demand has faded since mid-November for options that protect against a slide in the euro versus the dollar as derivative traders look beyond weakness in the shared currency and brace for a potential rebound.
The CHART OF THE DAY shows the premium for options granting the right to sell the euro versus those that allow for purchases has been cut by more than half even as the 17-nation currency plunged to a 16-month low versus the dollar. A negative reading for the so-called 25-delta risk reversal rate means implied volatility, a gauge of price and demand, is higher on euro puts relative to that on similar value calls. A put grants the right to sell; a call allows for purchases. The chart also shows record noncommercial speculative net short positions in euro futures contracts, according to Commodity Futures Trading Commission data.
http://jlne.ws/xd2LjP

Exchanges

CBOE CEO Brodsky: ‘I’m embarrassed to live here’
By Lynne Marek, Crain’s Chicago Business
January 10, 2012
(Crain’s) — CBOE Holdings Inc. CEO Bill Brodsky derided the state of Illinois for financial problems, such as underfunding of state pensions, just weeks after the state passed a new law that will reduce the taxes that his Chicago-based options exchange pays.
“I’m embarrassed to live here,” Mr. Brodsky said in answer to a reporter’s question at an annual CBOE media lunch Tuesday. His remark was in reference to a bond-rating downgrade by Moody’s Investors Service Inc. last week to A2, that agency’s lowest for any state. “We need people to come together and recognize the gravity of the situation and work together to a solution.”
http://jlne.ws/wICfLu

Another Chicago exchange master blows at PR
Greg Hinz On Politics | Crain’s Chicago Business (Opinion)
What is it about Chicago’s masters of the universe — aka the guys who run our big trading exchanges — and their wont to insert foot squarely in mouth?
First it was CME Group Inc.’s Terry Duffy.
In a trip down to Springfield a few weeks back to lobby for a big, expensive tax break, Mr. Duffy swaggered in as if he owned the joint, not so much making a quick and persuasive case as demanding an entitlement. He even kept referring to the Legislature as “Congress” — which said a lot about his mindset, in my view.
Now it’s CBOE Holdings Inc.’s Bill Brodsky who’s talking before thinking.
As my colleague Lynne Marek reported, Mr. Brodsky, in response to a question at the exchange’s annual media luncheon, said he was “embarrassed to live” in a state with such huge unfunded pension liability — this just a few weeks after Mr. Brodsky snagged about $6 million a year in state tax cuts as part of the CME legislation.
http://jlne.ws/wGJyd2
CBOE sees volatility products as engine of growth
By Doris Frankel
CHICAGO, Jan 10 (Reuters) – CBOE Holdings Inc’s suite of volatility products has been an engine of growth for the exchange operator as investors embrace volatility as an asset class, a top executive said on Tuesday.
‘For us, the acceptance of volatility as an asset class was validated in our achievement in setting record volume in 2011,’ said James Lubin, managing director of CBOE Futures Exchange (CFE).
CBOE is home of the
Volatility Index, Wall Street’s favorite barometer of sentiment also known as the VIX. In recent years, CBOE has introduced options and futures based on the VIX on its exchanges due to investor demand to trade volatility. VIX futures were offered in 2004 and VIX options followed in 2006.
http://jlne.ws/xVfdP2

Strategy

Covered Call ETFs For A Volatile, Sideways Market
Seeking Alpha
by: Vince Martin January 10, 2012
Covered call writing has become a popular strategy of late, particularly as online investing tools have cut transaction costs and allowed individual investors reasonably priced access to the options market. In addition, a number of factors have combined to make the strategy successful in the recent market. Higher volatility has increased option premiums; a sideways market (the S&P 500 closed 2011 down 0.03 percent) has limited the benchmark rate of return; and low yields in the bond market have forced investors to more creatively seek income generating strategies.
The Chicago Board Options Exchange (CBOE) compiles the BuyWrite Index (BXM), which simply involves the ownership of the S&P 500 index, with an index call option written against the long position. It has outperformed the broader market since the onset of the financial crisis in late 2007
http://jlne.ws/wbNtb4
— More on the CBOE’s new BuyWrite Index, which has received a lot of coverage lately, including our piece on Jan. 5.

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