Observations and Insight

Veronica Augustsson, CEO, Cinnober – The Why & How of Technology

“If you don’t know the technology, you don’t really know what you can achieve. It’s when you combine the business knowledge and the technology that you achieve something special.”

Veronica Augustsson, CEO of Cinnober, discusses the importance of tying together technical and business knowledge. Augustsson says that as a developer, one must not be easily discouraged when others tell them their ideas seem impossible. Knowing the capabilities of your technology will help generate new solutions to existing problems. Augustsson also touches on the importance of curiosity and why we should be driven by our curiosity to innovate and improve existing technologies. She says that finding an environment that helps inspire and drive your curiosity is essential.
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Lead Stories

An Options Poem
Randall Liss – The Liss Report
(with apologies to Edgar Allen Poe)
At the end of the day, it was dark and dreary
And when I looked at my option position, weary…
***DA: Don’t know what he’s complaining about. Sounds like he went home long a lot of gamma.

U.S. Stocks Sink With Global Equities as Oil Rout Worsens
Jeremy Herron and Joseph Ciolli – BloombergBusinessweek
U.S. stocks headed for the worst weekly drop in two months as equities tumbled around the world after crude extended declines below $60 a barrel. Treasuries rose and the dollar fell on concern inflation is slipping further below Federal Reserve targets.

Skepticism Jumps in Options as VIX Rises 70% in Four Days
Callie Bost, Joseph Ciolli and Oliver Renick – Bloomberg
Options traders aren’t buying the stock market’s message.
While the Standard & Poor’s 500 Index (VIX) posted its first gain of the week on Dec. 11, rising 0.5 percent, the Chicago Board Options Exchange Volatility Index also jumped, climbing 8.4 percent to cap its biggest four-day advance since 2011. The two gauges, one measuring share prices and the other anxiety among traders, only move in unison about 20 percent of the time.
***DA: Skepticism is a 10 percent move. A 70 percent move is more like panic. And then there’s the OVX:

Surging Oil VIX Signals More U.S. Stock Swings: Chart of the Day
David Wilson – Bloomberg
Bigger price moves in oil markets may be a sign of what’s to come for U.S. stocks, according to Joseph Mezrich, Nomura Securities International Inc.’s head of quantitative research.
The CHART OF THE DAY illustrates how Mezrich reached this conclusion, presented two days ago in a report. He compared the Chicago Board Options Exchange’s Crude Oil ETF Volatility Index with the CBOE Volatility Index, or the VIX. The indicators are derived from options on an exchange-traded fund, the U.S. Oil Fund, and the Standard & Poor’s 500 Index, respectively.
***DA: OVX rallied above 50 this morning. It had an 18 handle in September.

Drop in energy ETF draws bullish options bet on oil rebound
Saqib Iqbal Ahmed – Reuters
The sharp drop in the shares of a popular energy ETF in tandem with oil’s recent swoon attracted a bullish bet on Thursday in the options market that oil prices will rebound significantly through the first quarter of 2015.
The SPDR S&P Oil & Gas Exploration & Production ETF’s , which tracks the S&P Oil & Gas Exploration & Production Select Industry Index, rose 2.6 percent to $45.83 on Thursday.

November blip shows challenges for swaps trading venues -TABB
Karen Brettell – Reuters
Trading volumes of derivatives on new U.S. electronic trading venues plunged in November, while volumes of uncleared trades made away from the platforms spiked, showing that evolution of the markets is far from complete, said research firm TABB Group.
Rules that require most derivatives be traded on Swap Execution Facilities, or SEFs, are now over a year old. But many investors express frustration over divisions between where clients and dealers trade and that much of the market continues to trade away from the venues entirely.

What Really Caused Oil Prices to Plunge So Far — So Quickly
John Licata – The Street
The 35% drop in oil prices this fall has been breathtaking. No one — not even energy experts — expected prices to fall this far, this quickly. And the slide doesn’t seem to be over.
What happened? True, the U.S. has nearly doubled its oil production over the past five years, while OPEC and other suppliers have been unwilling to cut back on production. Demand has also been softening. But that still doesn’t explain why prices suddenly fell off a cliff.

Weekly Weekly’s Option Report 12.11.14
CBOE Options Hub
Volatility is shaking up the market and traders are loving the fast-pace of trades in the Weekly’s.  I’m Angela Miles. Today I am covering Weekly options expiring this Friday.  Next Friday is a traditional options expiration.
I’m starting with trades in the SPX. It’s a big volume day for SPX (S&P 500 Index) options contracts as the market responds to better-than-expect news on retail sales. One of the more predominate plays is at the 2,020 put strike going into Friday’s expiration. Implied volatility is relatively high at 25 implying this market still has a case of the jitters. On the call side, it’s mostly at-the-money call buying (2045 strike).


Trading venue IEX urges reform of stock exchange governance
Herbert Lash – Reuters
IEX Group Inc, a stock-trading venue featured in Michael Lewis’s book “Flash Boys” that plans to soon become an exchange, is urging reforms to U.S. exchange governance that would put it at odds with its soon-to-be brethren.
In a letter to the Securities and Exchange Commission, IEX said its recommendations would eliminate conflicts and boost transparency in the governance of data processors and data feeds, among other infrastructure aspects of the U.S. stock market.

CBOE Hits New 52-Week High as Volatility Index Escalates – December 11, 2014
Riding a steady, week-long growth momentum, shares of CBOE Holdings Inc. scaled a new 52-week high of $63.66 on Dec 10. Notably, the stock has jumped 7.6% and 25.7% since the third-quarter earnings release on Oct 31 and the beginning of 2014, respectively. Subsequently, the company’s market capitalization also rose to about $5.3 billion from about $5 billion at the beginning of December.
***DA: Maybe instead of (or in addition to) buying VIX as a hedge, we should all be buying CBOE stock.

CBOE Awarded U.S Options Exchange of the Year from Futures and Options World for Third Straight Year
Press Release – CBOE
The Chicago Board Options Exchange (CBOE) has been named “U.S. Options Exchange of the Year” for the third consecutive year at an awards ceremony during Futures and Options World magazine’s Derivatives World London Conference.
”CBOE is the biggest options exchange in the U.S., but it is not resting on its laurels. It continues to innovate and set the pace for its rivals and is a worthy three-time winner of this award,” said FOW Publisher Will Mitting.

Regulation and Enforcement

Will First Change to Dodd-Frank Open the Floodgates?
Ryan Tracy, Alan Zibel and Andrew Ackerman – WSJ
The first major change to the 2010 Dodd-Frank law passed Congress on Wednesday and headed to the president’s desk, breaking a four-year logjam. Financial-industry lobbyists plan to press for other items on their wish list, especially with Republicans set to take control of the Senate next year.
***DA: For a quick primer on the “could-be” scenarios, check out our post-election interview with Squire Patton Boggs’ Micah Green

Wall Street’s Win on Swaps Rule Shows Resurgence in Washington
Cheyenne Hopkins and Silla Brush – Bloomberg
Wall Street is re-emerging as a force in Washington as it closes in on one of its biggest wins against regulation since the financial crisis.
With must-pass spending legislation making its way through Congress this week, banks seized on an opportunity to attach a measure that would halt a planned restriction on derivatives trading they had long opposed. The industry’s lobbying extended to the highest levels of finance with JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon pressing lawmakers to support the change.

CFTC Chairman: We Have Oversight of Bitcoin Derivatives
The chairman of the US derivatives regulator has told a senate committee that digital currency derivatives fall within his agency’s remit.
Timothy Massad, who chairs the Commodity Futures Trading Commission (CFTC), testified before the US Senate Committee on Agriculture, Nutrition and Forestry yesterday, noting that while his agency does not have specific rules governing digital currencies, it would oversee futures and swaps in any commodity. This includes digital currencies, he said.

Traders Urging Smaller Banks to Offer Services, Demanding Uniform Post-Trade Data
Gregg Wirth – Traders Magazine
Large buyside institutions and trading desks that utilize OTC derivatives, most notably interest rate swaps, are waking up to an uncomfortable new reality in the post-Dodd-Frank world – the coming cost of mandatory clearing of OTC derivative products.

Holland Clearing House Receives EMIR Authorisation
Press Release – ICE
Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, announced today that De Nederlandsche Bank (Dutch Central Bank, DNB) has approved the Holland Clearing House as a central counterparty in accordance with the European Market Infrastructure Regulation (EMIR).
The National Competent Authority for Holland Clearing House granted authorisation on December 12, 2014.
“The EMIR authorisation of Holland Clearing House confirms that we fully comply with all the required EMIR standards on risk management, operations and technology. It is an important step for Holland Clearing House, and further underpins our growth potential in the European markets,” said Joost Beckers, CEO of Holland Clearing House.


Wolverine Launches New Vega Trading App for Options
John D’Antona Jr. – Traders Magazine
Traders looking to execute multiple options trades at one time are about to get a new applet to help them do so – and quicker.
Chicago-based agency broker Wolverine Execution announced the launch of WEX Vega Trader, a new trading applet that allows users to specify a target amount of vega to execute across a range of option expirations and strikes.

OptionsCity Software Appoints Iqbal Brainch as Vice President of Marketing and Product Strategy
Press Release – Options City
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced the expansion of its senior leadership team with the addition of Iqbal Brainch as Vice President of Marketing and Product Strategy. Brainch, who brings deep futures industry expertise and 15 years of experience in the financial industry, will lead all marketing efforts.

Dhaka Stock Exchange Goes Live With New Trading Engine Powered by Nasdaq
Press Release via MArketWatch
Dhaka Stock Exchange (DSE) and Nasdaq today announced that the Dhaka Stock Exchange has gone live with its new trading engine powered by Nasdaq’s X-stream INET technology. This refresh, operating on the most widely deployed trading platform in the world, will boost the exchange’s technological capability and capacity, enhance market resiliency and support DSE’s aspiration to become a multi-asset regional marketplace.  


Priceline Trade Lets You Name Your (Big) Profit
Steven M. Sears – Barron’s
There are few sights on Wall Street more appealing than a big fat options premium.
When you see one like the $78.30 to be had for selling Priceline Group’s (ticker: PCLN ) July $1,100 put, the finger that pushes sell buttons twitches with delight.

How to Trade a Surging VIX, By the Numbers
Adam Warner – Schaeffer’s Investment Research
In honor of our latest CBOE Volatility Index (VIX) pop, I decided to renovate my overbought VIX table a bit. From now on, I’m going to “Just Say No” to overlaps. If VIX goes overbought 29 days after the last time it went overbought, that data point will not make the cut into the one-month returns column.
This tweak didn’t actually impact the one-month returns much, though it did knock down the three-month returns — more on that in a few.

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