JLN Options: Exchanges Crack Down on Options Strategy

Oct 23, 2012

Lead Stories

Exchanges Crack Down on Options Strategy
Kaitlyn Kiernan and Jacob Bunge, The Wall Street Journal
Two of the biggest U.S. options-exchange operators are acting to discourage a controversial stock options-trading strategy, after a bank last month suffered a loss handling such a trade.
NYSE Euronext NYX told traders Monday that caps on certain trading fees will be eliminated as of Nov. 1, a move the exchange said was aimed at curtailing so-called dividend trades. Some in the industry have complained that such trades are designed to profit from smaller or unsophisticated investors who may not understand how the trade works, or may be poorly positioned to avoid coming out on the losing end of it.

Wall Street Is Rethinking Commodity-Trading Role
Aaron Lucchetti and Liam Pleven, The Wall Street Journal
Goldman Sachs Group Inc. GS has held preliminary internal discussions in recent years about splitting off its lucrative commodities-trading business, according to people briefed on the discussions.
The idea hasn’t gained traction and has been tabled, as the New York investment bank is waiting to see how the business fits into the final version of new regulations such as the Volcker rule, which is scheduled to be implemented in coming months. The final rule is expected to ban some types of trading and could hit commodities-trading revenue hard, these people said.

Wall Street drops as earnings, Spain’s debt spark fears
Chuck Mikolajczak, Reuters
Stocks slid more than 1 percent on Tuesday as poor earnings from major multinationals confirmed fears about the slowing global economy and Moody’s downgraded credit ratings for regions in Spain.
A number of the disappointing results including Dupont and United Technologies came from companies with operations across the globe and in many industries. The weak earnings and dwindling revenues have led to cost-cutting that will add to lost jobs in order to protect profits.

What ETFs’ Next Act Will Look Like
Exchange-traded funds have come a long way in 20 years. Here’s what to expect in the next five.
Ari Weinberg, The Wall Street Journal
Exchange-traded funds have transformed investing over the past two decades. The big question now is: What’s next?
January will mark the 20th anniversary of the first ETF in the U.S., now called the SPDR S&P 500, SPY whose assets stood at 9% of all U.S. ETF assets on Oct. 18. Individual investors and financial advisers have come to embrace ETFs for their low fees and the ease with which the funds, by tracking indexes, can pinpoint particular trends, styles or risks.

The rich bail out of changing hedge fund industry
Tommy Wilkes and Chris Vellacott, Reuters
Rich private investors are turning their backs on hedge funds because moves to attract more conservative pension fund clients mean managers no longer deliver the big returns they crave.
The fastest growing source of new money for hedge funds is now pension funds and insurance companies who want managers to go easy on risky trades.


CME Challenger Struggles In Largest U.S. Derivatives Market
Jacob Bunge, Dow Jones Newswires (via NASDAQ)
A push by big Wall Street banks to challenge the dominance of CME Group Inc. (CME) in handling financial futures is struggling as business on their trading platform has slowed to a trickle.
The ELX Futures LP platform, launched in 2009 by a consortium of banks and trading firms, has seen its share collapse this year in trading of interest-rate futures and options–bets on the direction of central bank policy that are among the most-commonly used risk management tool for companies, fund managers and speculators.

CME Europe exchange to target Asia-Pacific market
Michelle Price, Financial News
The CME Group will use its new European exchange as a springboard to the Asian-Pacific markets, with trading hours on the platform extending across the region’s trading day, the company’s chief operating officer has told Financial News.
The CME Group is one of a handful of large exchanges that is looking to expand eastwards to benefit from growth in the Asia-Pacific markets amid increasing competition at home.


U.S. Derivatives Regulator Proposes Rules for Customer Funds
Matthew Leising and Silla Brush, BloombergBusinessweek
The U.S. agency that oversees derivatives, criticized for poor oversight of MF Global Holdings Ltd. (MFGLQ) and Peregrine Financial Group Inc., proposed new rules to improve segregation and protection of customer funds.
The Commodity Futures Trading Commission’s five members unanimously approved the proposals yesterday without a public meeting, CFTC Chairman Gary Gensler said in a speech prepared for delivery at a Securities Industry and Financial Markets Association conference in New York.


Covered Call Writing Using The CBOE Volatility Index – VIX
Alan Ellman, Seeking Alpha
Stock options strategies, including covered call writing, factor in a multitude of parameters including fundamental and technical analysis as well as many common sense principles. In my books, DVDs and seminars, I discuss determining market tone before making any investment decisions. One of the main factors I utilize in this determination is the VIX.

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