JLN Options: Flash-Crash Story Looks More Like a Fairy Tale

May 8, 2012

Lead Stories Flash-Crash Story Looks More Like a Fairy Tale
By Mark Buchanan, Bloomberg
May 7, 2012 6:00 PM CT
Two years after the frightening spring day when the Dow Jones Industrial Average lost and regained about 600 points in a matter of minutes, we still don’t really know why. This is a problem, because it means something similar — or worse — could happen again. The Flash Crash of May 6, 2010, was more than a mere technical glitch. A hedge fund in Dallas lost several million dollars when the price of options it was buying suddenly spiked from 90 cents to $30 per contract. A man named Mike McCarthy lost $17,000 because his order to sell shares in Procter & Gamble Co. happened to be executed at roughly 2:46 p.m., just after the price hit rock bottom.
http://bloom.bg/IY9T9j NYSE Euronext Announces Trading Volumes for April 2012
NEW YORK, May 08, 2012 (BUSINESS WIRE) — –#1 in U.S. Equity Options in April; Record Monthly Market Share for NYSE Amex Options
–April European Cash ADV Up 23% and U.S. Cash ADV Down 13% Year-over-Year
NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for April 2012(1). Trading volumes were mixed both year-over-year and month-over-month across most venues, but reflected some strengthening relative to weak first quarter 2012 levels. Global derivatives average daily volume (“ADV”) of 8.2 million contracts in April 2012 decreased 6.9% versus the prior year, but increased 1.4% from March 2012 and increased 9.0% from first quarter 2012 levels. European cash trading ADV in April increased 22.8% versus the prior year, increased 14.8% from March 2012 levels and increased 17.8% from first quarter 2012 levels. U.S. cash trading ADV decreased 13.3% and 2.5% from April 2011 and March 2012 levels, respectively, and declined 3.6% from first quarter 2012 levels.
http://on.mktw.net/JbHFLa NYSE Gets Upgrade in Exchange Rebound
By Dan Freed, TheStreet
NYSE Euronext(NYX_)’s recent underperformance has led to an upgrade from Stifel Nicolaus Matthew Heinz, who nonetheless favors Nasdaq Omx Group (NDAQ_) and CME Group (CME_) for investors looking to bet on a recovery in U.S. trading volumes.
NYSE shares have fallen 15.3% during the quarter through Monday’s close, underperforming both the broader market and comparable companies.
http://bit.ly/J0dcMY In which Downtown Josh Brown solves the volume riddle
Forbes (Commentary)
“Where is everybody?”
The New York Times dredges up the open secret that no one is in the stock market anymore. Nathaniel Popper plaintively lays out the statistics and then consults a handful of sources to understand what’s going on…Trading in the United States stock market has not only failed to recover since the 2008 financial crisis, it has continued to fall. In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion, according to Credit Suisse Trading Strategy. The decline stands in marked contrast to past economic recoveries, when Americans regained their taste for stock trading within two years of economic shocks in 1987 and 2001.
Allow me to be of assistance as to why there’s no recovery in stock trading like there was after past recessions and crashes: They sold us out.
http://onforb.es/IY9Vhd

Technology

Hedge Fund Veteran Named Options IT Head of Technology
With more than 25 years of experience, Ian Bowell has been appointed as the firm’s new Head of Technology in the Americas.
By Phil Albinus, Advanced Trading
In his new role Bowell will be responsible for leading Options IT’s North American technology engineering, networking and support teams, as well as overseeing the growth of the Options PIPE Private Financial Cloud services in the North American region. Prior to joining Options IT, Bowell was the chief technology officer at Fauchier Partners, a BNP Paribas investment partner and leading global funds of hedge funds based in London.
http://bit.ly/JbQQeB

Strategy

Volatility ETN Contango, By The Numbers
Barrons.com By Brendan Conway
Traders in volatility exchange-traded funds and notes like the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) already know about the “roll” cost that often erodes those products’ value over time. But here are some very specific numbers: The phenomenon behind it exists as much as 81% of the time. And the monthly cost to “long” volatility positions rose as high as 30% in March.
http://on.barrons.com/IX1jEn
VIX Focus May Do Investors More Harm Than Good: Chart of the Day
By David Wilson, Bloomberg
Investors seeking to judge what’s ahead for U.S. stocks may be better off without a “VIX fix,” according to Tobias Levkovich, Citigroup Inc.’s chief U.S. market strategist. The VIX, the most widely followed gauge of market volatility, “has not been a great predictive indicator for future stock-price direction” as a rule, Levkovich wrote in a May 4 report.
http://bloom.bg/IOhpEs Market Correction Sows Seeds for Short Volatility Plays
InvestorPlace
Rather than fearing the ‘V’ word, look instead for opportunities
By Tyler Craig, Tyler’s Trading
Views on volatility vary across the spectrum. The lion’s share of long-biased investors quickly associate the “V” word with shocks to their emotional psyche and otherwise painful financial drawdowns. Volatility has long since been lumped into a rather unsavory group of lepers and plagues that are altogether shunned by the masses.Rather than flying solo, volatility has a well documented history of appearing hand in hand with bearish price action.
And therein lies the source of its widespread disdain. Since it inevitably materializes in the midst of market corrections, volatility is associated with all sorts of hobgoblins that haunt the dreams of the everyday buy-and-holder.
http://bit.ly/L2wiSw

Options Education

5 options trading myths
By Michael Sincere
MIAMI, Fla. (MarketWatch) — While researching my book, “Understanding Options,” I discovered that many people misunderstand options. Even worse, some experts make it seem like you need a Ph.D in mathematics to trade them, and some option books don’t help. Investors are looking closely at hints of the types of policies new French president Francois Hollande will put forward. WSJ’s Grainne McCarthy speaks to AXA chief economist Eric Chaney to find out what investors expect.
Option myths probably started in 1635 when Dutch investors bought call options on exotic tulip bulbs. Some people made paper fortunes without ever taking possession of the beautiful bulbs. When tulip prices collapsed a few years later, so did the Dutch economy, and the once valuable options became worthless. Many investors blamed options for their losses.
http://on.mktw.net/IIPNle

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