JLN Options: Cheap volatility, but big potential in China

Dec 5, 2012

Lead Stories

Cheap volatility, but big potential in China
Andrew Giovinazzi, MarketWatch
Look at the VIX inch up in the face of very slow market activity . After trading the S&P 500 on the CBOE when I was younger, I can tell you what that feeling is. The paper is very thin, and it is buying options out of fear. Liquidity providers keep raising the prices since they don’t want a large position right now waiting for some answer out of Washington.
http://jlne.ws/YP6Vgr

How Did Wall Street Do on Sandy? 
Jacob Bunge, The Wall Street Journal
Securities-market regulators are seeking details on the performance of banks’ and brokers’ disaster-recovery plans during Superstorm Sandy, including firms’ ability to effectively trade when the New York Stock Exchange NYX is down.
http://jlne.ws/TQJFbb

The view beyond the ‘cliff’: Blue skies 
David Berman, The Globe and Mail
BCA Research has taken a sunny view, arguing that economic growth should rebound in 2013 even if the economy takes a step back early in the year. After all, a budget deal that extends middle-class tax cuts and avoids the most dramatic spending cuts will nonetheless slow U.S. growth to about 1 per cent in the first quarter of next year.
http://jlne.ws/YP7BlO

Exchanges

NYSE Euronext announces proposed pan-European project for SMEs
Press Release
Following the recommendations of its Strategic Planning Committee for SMEs, NYSE Euronext (NYX) today announced plans to launch a pan-European exchange especially for small and medium-sized companies, developed in consultation with all of the Group’s European markets.
http://jlne.ws/TQJ3SZ

Eris Exchange to Launch New, Margin-Efficient Interest Rate Swap Futures
Press Release
Eris Exchange, a US-based futures exchange, today announced the December 10 launch of Eris Standards — quarterly Interest Rate Swap Futures contracts that are expected to offer margin savings of 40-80% compared to cleared OTC interest rate swaps. Eris Standards are 2, 5, 10 and 30-year swap futures contracts with quarterly effective dates, pre-determined fixed rates, and cash settlement upon maturity. Additionally, on December 3, Eris Exchange launched the next generation of its Eris SwapBook electronic trading platform.
http://jlne.ws/UeW47U (PDF)
** Not strictly options but there will (probably) be options on these in the future. –JB

Regulation

Time for a Bold Choice for S.E.C. Head
Richard E. Farley, Dealbook
Much has been said about the unfinished business that Mary L. Schapiro will leave behind as she steps down as chairwoman of the Securities and Exchange Commission after nearly four years.
But it did not have to be this way. Looking back to the early days of the S.E.C. in the 1930s shows that a wholesale, sweeping overhaul can be accomplished quickly if the right leadership is installed.
http://jlne.ws/VC6nWN
** The author never specifies who would be considered a “bold” pick. Sheila Bair? Brooksley Born? Eliot Spitzer? Send us your ideas. –DA

CFTC Says Broker Tried to Manipulate Wheat Futures Prices
Christie Smythe, Bloomberg
While trading for the companies, Moncada placed and immediately canceled orders in December 2009 wheat futures with the intent of raising or lowering prices, the U.S. Commodity Futures Trading Commission alleged in a complaint filed today in federal court in Manhattan.
http://jlne.ws/VmLexu
** Is this very different than when HFT firms submit and cancel orders in rapid succession?  I really do not know.  If a reader has any opinion on this drop me an email. (Also: See the article just below this one) –JB

High-Speed Traders Profit at Expense of Ordinary Investors, a Study Says
Nathaniel Popper, The New York Times
A top government economist has concluded that the high-speed trading firms that have come to dominate the nation’s financial markets are taking significant profits from traditional investors.
http://jlne.ws/VmNlS2

Derivatives Regulators List Potential Problems
Jamila Trindle, Dow Jones Newswires (via NASDAQ)
International derivatives market regulators have identified potential problems in new rules for the market and agreed to seek solutions, they said in a joint statement issued Tuesday following a meeting last week.
http://jlne.ws/VmNNzG

Technology

The Xignite Market Data Cloud Powers NYSE Technologies Web Services
Press Release
Xignite Inc., provider of market data cloud services, and NYSE Technologies have announced the addition of NYSE Liffe Derivatives and NYSE Bonds data to the NYSE Technologies Market Data Web Services. The web service solution, powered by the Xignite Market Data Cloud, provides access to real-time, historical and reference market data for all NYSE Euronext markets via the Internet.
http://jlne.ws/TQKbGi

ConvergEx Group’s ConnEx Wins Best Infrastructure Initiative at the American Financial Technology Awards
Press Release
ConvergEx Group, a leading technology company, today announced that ConnEx, its outsourced hosted FIX connectivity infrastructure business, was named the Best Infrastructure Initiative at the 8th annual American Financial Technology Awards (AFTAs).  ConnEx was also named a finalist for the Best Risk Analytics Initiative for its risk monitoring application.
http://jlne.ws/YP7czQ

Strategy

Playing VIX Term Structure
Mark Sebastian, The Options Insider
Over the years, I have made the argument repeatedly that I think SPX puts do a better job of hedging than VIX calls, especially in low VIX environments.  However, like all trades and hedges, that is not a rule but a generality.  There is something strange going on in VIX that is making going long call spreads in VIX very favorable.
http://jlne.ws/VwyASw

Take Advantage of Special-Dividend Mania
Sell puts on stocks that are front-loading cash payouts in advance of tax-rate hikes next year. 
Steven M. Sears, Barron’s
Forget about waiting for companies to announce special or accelerated dividends ahead of next year’s rising dividend tax rate. The options market is paying its own form of special dividends to nimble investors.
http://jlne.ws/SGw2hG

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