JLN Options: Hedging Demand Halts Issuance of Credit Suisse VIX Note: Options

Feb 23, 2012

Lead Stories

Hedging Demand Halts Issuance of Credit Suisse VIX Note: Options
By Nikolaj Gammeltoft, Cecile Vannucci and Matt Robinson, Bloomberg – Feb 23, 2012
Traders rushing to protect against declines in the Standard & Poor’s 500 Index created so much demand for an exchange-traded note tied to equity volatility that Credit Suisse Group AG (CSGN) stopped issuing shares.  Switzerland’s second-largest bank suspended the creation of new stock in the VelocityShares Daily 2x VIX Short-Term ETN on Feb. 21 after its market value more than quadrupled in 2012 to a record $694.4 million, data compiled by Bloomberg show. Shares outstanding have surged 699 percent since Dec. 30 as the S&P 500 climbed 8 percent and posted its best January gain since 1997.

The Fast Money’s Next Volatility Target
By Brendan Conway, Barrons.com
Investors who follow the gaggle of complex leveraged products tied to the CBOE Volatility Index know that a popular one backed by Credit Suisse (CS) stopped issuing new shares this week after a trading surge triggered the investment bank’s “internal limits.” All signs suggest that running and hedging this corner of the burgeoning market for volatility trading vehicles simply got to be a bigger task than CS originally envisioned.
Thursday, there’s a battle playing out for control of the existing shares in the product, the VelocityShares Daily 2x VIX Short Term ETN (TVIX). In a rarity for exchange-traded funds and notes, TVIX is currently trading at about 16% above the intraday indicative value, according to FactSet Research Systems. This morning, it was 13% above those levels, according to Bill Luby at VIX and More. That’s what happens when demand outstrips supply, as is often seen in sleepier markets like closed-end funds.

OIC Announces Edward J. Joyce to Receive Joseph W. Sullivan Award at the Annual Options Industry Conference
CHICAGO, IL, Feb 23, 2012 (MARKETWIRE via COMTEX) — The Options Industry Council (OIC) announced today Edward J. Joyce as the 2012 recipient of the Joseph W. Sullivan Options Industry Achievement Award. This recognition on behalf of outstanding contributions to the growth and integrity of the U.S. options market. The award presentation will be at the 30th Annual Options Industry Conference, being held at The Roosevelt Hotel in New Orleans, from May 3-5.

VIX Below Average But Signals Flash RiskWSJ.com
–CBOE’s VIX has traded below its long-term average for most of the last month
–VIX has been rising over the last two weeks, even as stocks edge higher
–Stocks and VIX increasingly move together, a bearish sign for some
–VIX is still far higher than S&P 500’s 30-day realized volatility
NEW YORK (Dow Jones)–On its face, the market’s fear gauge hardly looks fearsome, but other volatility metrics show traders expect choppier trading that could jolt this year’s run-up in stocks.
The Chicago Board Options Exchange Volatility Index has plummeted as the broader stock market staged its best yearly start in two decades. The VIX, as the index is known, has fallen more than 22% so far in 2012, falling 0.2% to 18.16 in late Wednesday trading. The S&P 500, meanwhile, has climbed 8% so far this year. Stock market volatility has deflated, and shares have gained, as investors turned increasingly upbeat about the pace of U.S. economic growth, and less worried that Europe’s sovereign debt issues will cripple financial markets.

Index, ETF option volumes near midday
Chris McKhann, tradeMONSTER
Total options volume tops 6 million contracts as puts dominate most of the action in the Index and ETF volumes. The SPDR S&P 500 Fund (SPY) has 662,000 options traded, puts outpacing calls more than 2-1. The iShares Russell 2000 Fund (IWM) is next up with a strong 296,000, 198,000 of which are puts. The PowerShares QQQ Trust (QQQ) also tops 200,000 with 152,000 puts traded.


BATS Global Markets Plans Final Steps Toward $100M IPO
BATS Global Markets may launch its long-planned initial public offering by the end of March in what would be the first U.S. flotation in almost four years launched on an exchange not run by NYSE Euronext or Nasdaq OMX Group Inc. The exchange operator, based in Lenexa, Kan., is completing details for an IPO on its own platform, though the timetable could slip into April, according to people familiar with the matter. The listing would mark another step in BATS’s transformation into one of the largest stock-market operators in the U.S. and Europe, having launched as an upstart set up by trading firms and Wall Street banks to challenge NYSE and Nasdaq.

Former CBOE trader swaps finance for theater

by Peter Rawlings, Medill Reports
Feb 22, 2012
Some industries are better equipped for lean times than others. Former Chicago Board Options Exchange trader David Knezz has managed to weather several downturns in the last decade with a new business venture: masks.
“There doesn’t seem to have been a recession for masks,” said Knezz, who now operates a mask-making business part-time from his home in Homer Glen. Customers for his handmade masks include actors, teachers and theater troupes across the globe. The last few years have been his busiest since he started more than ten years ago. Revenue has doubled since 2008 to $20,000 last year.


Schapiro questions role of high-frequency traders
The Wall Street Journal
23 Feb 2012
Securities and Exchange Commission chairman Mary Schapiro said Wednesday she is worried about the role of high-frequency traders in the stock market and hinted at new policies aimed at curbing frenetic market activity.
A large portion of trading in the equities market has little to do with “the fundamentals of the company that’s being traded” and more to do with “the minuscule aberrational price move” that computer-assisted traders with direct connections to the exchange can “jump on” in fractions of a second, Schapiro said.


Öhman Capital secures its competitive position by selecting Orc as trading technology provider
Orc remains preferred supplier to Öhman Group; selected to support newly established investment and trading firm Öhman Capital.
Stockholm, SWEDEN – Thursday, February 23, 2012 – Orc Group AB (SSE: ORC), a leading provider of technology and services for the global financial industry, today announced that Öhman Capital, a Stockholm-based investment and trading firm, has chosen Orc as its preferred trading technology supplier. Öhman Capital will use Orc Trading to support its market making and high frequency trading operations. The solution includes Orc Trader and Orc Liquidator products together with market access to Nasdaq OMX, Burgundy and Nordic Growth Market (NGM). The deal was booked in Q1, 2012, and the contract is based on Orc’s licensing subscription model.


How to Play Oil Rally With Less Risk
By STEVEN M. SEARS, Barrons.com
Buy calls on the energy ETF to gain from further potential oil price rises.
A funny thing has happened in the options market since crude-oil prices started surging higher.
Even though crude-oil prices are at nine-month highs, the volatility on the main oil-stock index has collapsed. That presents the opportunity to buy bullish calls on the Select Sector Energy SPDR (ticker: XLE) exchange-traded fund without paying top dollar. The position is doubly attractive because it creates leveraged exposure to crude prices should exogenous events such as a crisis involving Iran cause oil prices to surge.

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