JLN Options: 'Aggressive' Bullish Options Activity Seen in Allergan Ahead of Tie-Up Reports; Bears Tightening Grip on Facebook After Buyout Binge: Options; Fragmentation Vexes Options Market

Apr 22, 2014

Lead Stories

‘Aggressive’ Bullish Options Activity Seen in Allergan Ahead of Tie-Up Reports
Chris Dieterich – The Wall Street Journal
Options trading in Allergan Inc. spiked on Monday hours before a news reports that activist investor William Ackman and another pharmaceutical company were gearing up to buy the Botox maker.
The Wall Street Journal reported after Monday’s closing bell that Mr. Ackman’s Pershing Square Capital Management LP had built a large stake in Allergan, and with Valeant Pharmaceuticals International Inc., were combining forces for a possible acquisition.

Bears Tightening Grip on Facebook After Buyout Binge: Options
Joseph Ciolli and Corinne Gretler – BloombergBusinessweek
Facebook (FB:US) Inc.’s generosity is getting harder to stomach for options traders after this month’s selloff in technology stocks.
Even after shares of the world’s biggest social network slumped 12 percent last month, bearish puts are trading at the highest prices (FB:US) compared with bullish calls since July, a sign investors are protecting against more losses, according to data compiled by Bloomberg.

Fragmentation Vexes Options Market
With the number of U.S. options exchanges now at 12, traders and exchanges are experiencing many of the technological and market structure issues associated with equities, such as fragmentation and rising networking costs.
“With more exchanges and better technology it’s getting harder to get filled when you have to fan out to multiple exchanges,” said an executive at a large U.S. options market maker, who spoke on condition of anonymity. “We’ve had to make numerous changes to our routers and our methodology to adapt to the current landscape.”

Fearless Traders Shun Options as Kospi Risk Falls: Korea Markets
Sharon Cho – Bloomberg
As options traders from the U.S. to Germany and India grow more concerned about a selloff in stocks, they’ve never been so sanguine in South Korea.
The Kospi 200 Volatility Index, the benchmark gauge of demand for protection against swings in Seoul-listed equities, has dropped 7.6 percent in the past three months and reached a record low on April 17, the biggest retreat among 12 options measures tracked by Bloomberg worldwide. That compares with a 9 percent gain in the U.S. and a 100 percent surge in India.

Reading the VIX Tea Leaves for Signs of a Shift
Adam Warner – Schaeffer’s Investment Research
There’s a theory out there that volatility picks up right before a market turn. Well, we’re certainly getting that volatility pickup, especially in the Nasdaq as we noted last week.
The big question though is, which move are we about to reverse? Is it the longer-term bull move that’s ending? We can say it goes back to 2012, 2011, or 2009 — it depends on your definition. Or is it the shorter-term choppiness that’s about to end? That, I would say, goes back to the turn of the year into 2014.

Caution urged in maker-taker pilot
Richard Henderson – The Trade USA
The elimination of maker-taker pricing for a subset of US equities may have adverse effects on the buy-side in the short term, but would benefit asset managers’ participation in the US equity market overall, participants have said as support grows in Washington for a pilot programme.

Videocast: VIX sellers trump buyers

To check wild swings, NSE to extend reference price to VIX futures , Nifty options
The Hindu Business Line
The National Stock Exchange will extend the concept of reference price and execution range to India VIX Futures and Nifty long-term options contracts only if it works out well for other contracts in the futures and options (F&O) segment, according to Chitra Ramkrishna, MD & CEO, NSE.
Speaking on the sidelines of NSE’s Futures Tech summit in Mumbai on Tuesday, Ramkrishna said quite a few markets worldwide are already experimenting.

High-frequency traders: heroes or hoodlums?
Jonathan Davis – Financial Times
By using the emotive phrase “rigging the market” to describe the impact of high-frequency trading on stock markets, the author Michael Lewis has guaranteed himself both extensive publicity and enhanced sales for his book, Flash Boys .


Tailor-made hedging with Eurex’ new EURIBOR Mid Curve Options
On 3 March, Eurex Exchange launched one to four-year EURIBOR Mid Curve Options (American-style) on its already existing Three-Month EURIBOR Futures. The Eurex Editorial Team talked to Mehtap Dinc, Member of the Eurex Executive Board and responsible for product development, about this latest product launch.

CME Launches Euro DSF contracts
The Options Insider
Lost in last week’s short trading week was the April 14 launch of CME Group Inc. (CME)’s Euro-Denominated Deliverable Interest Rate Swap Futures (Euro DSF) contracts.
The product comes in two-year, five-year and 10- year maturities and a notional value of EUR 100,000 per contracts.

Scope of ‘freak trade’ limits on derivatives may get wider [India]
Business Standard
The National Stock Exchange (NSE) might extend a limit on entering order prices which are outside the normal trading range of securities.
The exchange had earlier announced orders for certain derivative contracts would be executed only if these were within a certain ‘price band’. These new norms were to be applicable to mid- and far-month futures and options contracts. These might now be extended to other products as well, said Chitra Ramkrishna,managing director and chief executive officer of NSE.  “If it works out, we will implement it across the board,” she said, on the sidelines of a technology summit organised by NSE.

Regulation and Enforcement

SEC Eyes Potential Order Routing Disclosures
Ivy Schmerken – Wall Street & Technology
The U.S. Securities and Exchange Commission is said to be considering a plan to require brokers to disclose their order routing practices to the public, according to two separates reports in Bloomberg and Reuters.
When buying and selling stocks, institutional traders submit their orders to brokers which have a choice of 13 public stock exchanges and more than 40 alternative trading systems known as dark pools.

Feds create new Chicago teams targeting cybercrime, securities fraud
Kim Janssen – Chicago Sun Times
Cybercrime and securities and commodities fraud will be targeted by new teams of Chicago prosecutors under a reshuffle ordered by U.S. Attorney Zach Fardon.
And violent crime — an area in which Fardon has been under political pressure to do more — will get its own boss, but no extra attorneys.
The reorganization of Chicago’s 153 federal prosecutors is the first major management change Fardon has instigated since his appointment late last year.


OptionsCity Software Expands Algo Store to Metro Customers
Press Release (OptionsCity)
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that users of its flagship Metro trading platform will now have direct access to the OptionsCity Algo Store. The Algo Store was created to provide customers with a marketplace to buy and sell algorithms for trading futures and options. OptionsCity offers this enhancement through Metro Link, a tool that allows traders to run algorithms purchased in the Algo Store within Metro.


Profit From Earnings Announcements With This Trading Menu
Steven M. Sears – Barron’s
The chance to make big profits on short-term moves is one of Mr. Market’s most powerful pheromones. It’s a key reason why earnings season often turns the most conservative investors into aggressive traders.
Readers have recently asked for a list of high-beta growth stocks that took a beating during the recent correction. They asked that the list reflect expectations in the options that the stock would make a sharp move in reaction to earnings.


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