JLN Options: CBOE to Launch S&P 500 Index Range Options

Aug 21, 2012

Lead Stories

CBOE to Launch S&P 500 Index Range Options
Press Release
Chicago Board Options Exchange, Incorporated (CBOE) announced today that it will launch trading in a new type of S&P 500® Index options contract, known as CBOE S&P 500 Range options (ticker: SRO), beginning on Tuesday, August 28.
CBOE Range options were designed to provide individual investors with a lower-risk, lower-cost way to trade S&P 500 Index options.
SROs pay an exercise settlement amount if the settlement value of the underlying index at expiration selected by the investor falls within a specified “range length.” The range length for SROs will be set at 70 S&P 500 Index points.  
SRO payouts work as follows: If the S&P 500 Index settlement value falls within the middle 50 points of the 70-point range, the payout for the option will be $1,000.   If the S&P 500 Index settlement value falls within the 10 points on either side of the 50-point range, the payout amount will decrease linearly (e.g., positive payout will be between $999 to $1) to zero.
http://jlne.ws/ONyHQB

Options Brokerage Confronts Risky World
Peter Chapman, Traders Magazine
The writing was on the wall. In April 2007, New Century Financial Corporation, one of the largest subprime mortgage originators, filed for bankruptcy. In July 2007, Bear Stearns liquidated two now-infamous hedge funds that invested in mortgage-backed securities. In August 2007, Fitch Ratings downgraded Countrywide Financial to BBB+, its third-lowest investment-grade ranking. In September 2007, the U.K.’s Chancellor of the Exchequer authorized the Bank of England to bail out Northern Rock, Great Britain’s fifth-largest mortgage lender.
http://jlne.ws/Pbpgfw

Share market ‘fear index’ signals all is calm… but is it actually a sign of more chaos around the corner?
Tanya Jefferies, This is Money
The financial world’s ‘fear index’, a measure of stock market swings, has eased to its calmest level since the financial crisis hit in 2007 – so naturally experts are predicting impending chaos.
The VIX – the ‘volatility index’ – has dropped to soothing levels last seen in August 2007 – just before markets were clobbered by the credit crisis and all the disastrous events that came in its wake.
http://jlne.ws/PbpmU9

No, The Vix Isn’t Broken: Jon Najarian
Lee Brodie, CNBC
With the spot Vix trading at multi-month lows, some traders are insisting that the fear gauge is broken…
But Jon Najarian tells us the Vix is doing exactly what it should be doing – and it’s revealing something very important.
http://jlne.ws/Rx6hlr

UBS Starts Unit Providing Services for Quantitative Hedge Funds
Nina Mehta, Bloomberg
UBS AG (UBS) is starting a unit aimed at attracting clients among quantitative hedge funds, combining services from its prime brokerage and direct-execution trading businesses.
Scott Stickler in New York will be global head of the operation, called UBS Quant HQ. Strategies across equities, options and futures will be supported with fixed income and foreign exchange to be added later, he said. The business targets startups and established funds with long-short or hedged strategies and those focused on arbitrage.
http://jlne.ws/ONAZiG

OptionMonster Daily Volatility Report with Jamie Tyrrell of Group1 Trading:

Exchanges

CME’s Cautious European Game Plan
Renee Schultes, The Wall Street Journal
The Chicago Mercantile Exchange has effectively rolled its tank onto the lawns of Europe’s two biggest derivatives exchanges. But its arrival isn’t likely to have an immediate impact.
http://jlne.ws/Puo4Xp

On CME in London: Whatever you do, don’t mention the Merc
David Sheppard, Josephine Mason, Jonathan Leff and Ann Saphir, Reuters
It’s probably a good thing for the CME Group (CME.O) that their plans unveiled on Monday to set up a new European exchange bear almost no resemblance to a costly, failed effort by its New York unit to cross the Atlantic eight years ago.
In 2004, the New York Mercantile Exchange (NYMEX), at the time a hallowed, independently owned East Coast institution, jumped at the chance to extend its energy market domination to Europe as the continent’s main oil exchange prepared to shut down its open-outcry trading floor, one of the last in London.
http://jlne.ws/NDDFFo

Strategy

Why You Must Be Careful Trading Volatility
Bob Pisani, CNBC
A volatility product is the best-performing Exchange Traded Product (ETP) this year…but that doesn’t mean you should rush into it. Here’s why.
It’s the Credit Suisse Inverse VIX, and it’s up 116 percent this year, the single best-performing ETPs this year.
It is essentially the inverse of a Barclays ETN, the VXX, which is supposed to provide access to the CBOE Volatility Index (VIX).
http://jlne.ws/NDDmul

The Hedge is Savvy Investors’ Edge
Steven M. Sears, Barron’s
There are few truths in the market, but this is one: hedge portfolios when options’ implied volatility drops to unusually low levels.
Low volatility suggests investors are too confident the stock market will rise. This often ends poorly.
http://jlne.ws/OW1M2a

Watch the VIX to Identify the S&P’s Next Big Move
Chad Karnes, ETF Guide
Early to bed and early to rise makes a man healthy, wealthy, and wise, the old saying goes.  But, being early to a trade can have the opposite effect, potentially losing money.
On Aug 6 we wrote an article on the VIX that identified a high probability trade that was setting up. With the VIX (CHICAGOOPTIONS:^VIX) under $15 today, that setup has still not triggered and we continue to wait patiently for its tradeable signal.
http://jlne.ws/OWfG4a

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