JLN Options: Bats Profit Doubles in First Earnings Report Since Going Public; There Are Bear Tracks All Over the Market; Jeff Sprecher’s next move?

May 6, 2016

Lead Stories

Bats Profit Doubles in First Earnings Report Since Going Public
Bats Global Markets Inc. said its first-quarter profit doubled, driven by increased market volume and market share, in its first earnings report as a public company. Bats went public last month, surging in its market debut after shares priced at the high end of expectations. The deal gave a shot of optimism to the IPO market after a first quarter that saw the fewest U.S. listings since the financial crisis. As of Thursday’s close at $24.15, the stock is up 27% from its IPO price of $19.

****SD: Bloomberg story on Bats and the press release can be found in the Exchanges section.

There Are Bear Tracks All Over the Market
With the employment number out first thing Friday morning, we know what will move the market, so why try to guess? Instead, let me just point out that the bearishness is rising. One week ago, the put/call ratio for the VIX was 227%. A high put/call ratio is a bet on the underlying index going down. In this case, the bet was for a lower VIX, which is a bet on a higher stock market. If we use this as a contrary indicator, then we can see that stocks went down and the VIX went up. On Thursday, we saw the total put/call ratio chime in at 120%, the highest reading since Feb. 29. So now they are betting heavily on the stock market going down. That’s quite a change in one week.

****SD: The passing of winter marks the end of hibernation.

Jeff Sprecher’s next move?
ICE chief Jeff Sprecher said on Wednesday he would not bid for the LSE Group but the race for SwapClear is not run yet
With ICE pulling out of the race for the LSE, another, more intriguing option faces the US exchange. Contrary to expectations, ICE is out of the running for the London Stock Exchange leaving the field (almost – CME must surely be considering a move) clear for Deutsche Bourse to have a shot at completing the deal. However, ICE is not necessarily out of the running for SwapClear, or at least the SwapClear open interest.

****SD: When looking for a next move, it’s hard to go wrong with the jazz splits. Or, you know, any of the breakdancing power moves are solid choices.

Non-Farm Payrolls, VIX, and the Fed Ahead!
CBOE Options Hub
The next FOMC meeting will be June 14-15th and includes a press conference. Based on Fed Fund futures, there’s a relatively low (about 13%) and declining likelihood that the Fed moves to raise rates further at their next meeting. A very strong jobs number could change that probability and it almost always has knock-on effects for VIX, Equity Indexes, Currencies, and Commodities.

Has the Pickup in Wall Street Volatility Only Just Begun?
Elliott Wave
We’ve all heard the phrase, “the calm before the storm.” The same applies to the stock market: Periods of low volatility are usually followed by high volatility. Let’s go back to March 18, when volatility was non-existent.

****SD: Yes.

GH Financials boosts low-latency coverage
Broker GH Financials has inked a deal with software vendor Celoxica to provide a fully automated, low-latency access platform for the futures market. GH Financials, a derivatives clearing and settlement provider, will now be able to provide an automated, low-latency market data gateway and risk direct market access (DMA) platform for futures markets, including CME Group, the world’s largest futures exchange.


Record Volume in April for SPX Wednesday-Expiring Weeklys Options
Matt Moran – CBOE Options Hub
In February CBOE launched S&P 500 Index (SPX) Wednesday-expiring WeeklysSM options. Last month the average daily volume for the “Wednesday Weeklys” rose to a record high of 72,957 contracts.

****SD: REX owes the weeklys a lot.

Hong Kong sees 40% drop in April trading
Exchange reported minor losses in futures and a 55% drop in options trading
Hong Kong Exchanges and Clearing (HKEx) has reported a 40% drop in the daily derivatives trading last month due to a collapse in options activity, making the Asian group the worst performer of the large international exchanges in April. The daily average volume on the exchange’s derivatives market was 724,685 contracts, a 39.7% drop compared to the 1,202,287 contracts traded in April 2015, one of the exchange’s busiest months on record. Options on the exchange dropped 55% to 378,124 contracts, compared to 844,864 contracts traded in the same month last year.

Bats Profit From Forex Quadrupled in First Post-IPO Earnings
Bats Global Markets Inc., the exchange operator that went public last month, more than quadrupled earnings from its currency business, following its acquisition of Hotspot FX last year.

Bats Reports First Quarter Adjusted Earnings Growth of 77%
Press Release
Bats Global Markets, Inc. (Bats: BATS), a leading global operator of exchanges and services for financial markets, today reported earnings of $30.1 million and adjusted earnings of $35.6 million for the first quarter ended March 31, 2016, an increase of 77% in adjusted earnings† from $20.1 million a year ago. Adjusted earnings, which excludes tax-adjusted amortization and one-time costs, rose to $0.37 per diluted share from $0.21.

NSE to launch weekly options contracts on Bank Nifty index
Economic Times
Leading stock exchange NSE today said it will introduce weekly options contracts on Bank Nifty index from May 27. The decision comes after receiving approval from markets regulator Securities and Exchange Board of India (Sebi).

MIAX Options Exchange: Notice Of A Potential Allocation Issue
Press Release
Please be advised that MIAX has identified a technical issue related to behavior at the conclusion of the Price Improvement Mechanism (“PRIME”) auction that has the potential to cause an improper allocation in certain circumstances, for booked interest priced at the NBBO at the start of the auction, when the trade is executed at the NBBO. The PRIME Agency Order, all Priority Customer Orders and the PRIME Contra Order are not affected by this issue.

Regulation & Enforcement

US Securities and Exchange Commission Seeks Public Comment on Plan to Establish Consolidated Audit Trail
On April 27, 2016, the SEC released a plan for a proposed national market system that would create a single database, the Consolidated Audit Trail, to track all US activity in the equity and options markets. The establishment of the CAT will allow regulators to be better positioned to identify and investigate market misconduct, and will increase the effectiveness of market research and monitoring. The CAT would be conducted through a Delaware limited liability company that the self-regulatory organizations would own jointly, and participating self-regulatory organizations and the SEC would have access to the data in the CAT for regulatory and oversight purposes. The plan sets out the record keeping and reporting information that SROs and brokerdealers would be required to submit at various stages in the lifecycle of an order or transaction. Public comments on the plan are due within 60 days of the plan’s publication in the Federal Register.

FINRA: Emotions Increase Susceptibility To Fraud In Older Adults
Finance Magnates
The Financial Industry Regulatory Authority (FINRA) today published the findings of its research into how emotions can increase susceptibility to fraud in older adults. Recognizing the mechanisms of scams helps investors to protect themselves. It is a well known fact that financial fraudsters often attempt to evoke strong emotions in their victims in order to convince them to hand over money, and the evidence is that seniors may be particularly vulnerable to the effects of heightened emotions on decision making.

SMN Weekly
Hong Kong’s Securities and Futures Commission (SFC) has added FX Protrade and 5Markets Limited to its alert list. It contains companies who are not authorized to provide financial services in Hong Kong, are claiming to be somehow associated with it, or are believed to be or have been targeting investors in Hong Kong. The information in the alert list is provided as an early warning service to investors but is not a substitute for investors conducting their own due diligence by checking up on a particular entity.


FinTech trends in 2016
Mobile payment between smartphones, checking accounts managed exclusively online and via app, or robo advisors available 24/7 to track the highest-return investment for clients within seconds – these are all examples for FinTech. The number of business areas affected by these new trends within the financial industry is enormous. A report recently published by McKinsey forecasts that the FinTech start-ups’ innovations will cast their effects across large parts of the financial services sector.

Nadex Binary Options app for iOS devices gets updated
North American Derivatives Exchange, Inc. (Nadex), part of IG Group Holdings plc (LON:IGG), has recently released a new and beefed up version of its binary options application for iOS devices.


FxWirePro: Option market as a roadmap for underlying market positioning and hedge funds positions in dollar
Option markets crucial in the analysis of market positioning, in 2007, the notional amount outstanding of exchange traded options reached a peak of 60 trillion US dollars. Since then, volumes have stabilised but the importance of the options for the analysis of market positioning is undeniable. The table on the left shows the impact of adding options to the analysis based on options & futures, measured by the increase in open interest.

The VIX: Which Way, When?
Peter F. Way, CFA
Will the “fear index” go lower now, or spike up soon? How far might it go – in either direction? Why is it so hard to know? Where can I get some warning? Why doesn’t the VIX behave rationally? Oh, it does. Perhaps there is a confusion of rationality with “normality”? The VIX index has been around for over half a century, started by CBOE traders soon after trading in listed options began in earnest. Originally it was the VXO, based on the S&P 100 index (the OEX), back when listed options trading was expanded from the original 32 names to only a few hundred established companies. Regulators in those days feared rampant fraudulent behaviors unless trading was carefully monitored.

Stock Market Getting Ready for the Next Flash Crash
Market Oracle
Making sense out of the Wave pattern has been a mind bender. I keep reminding myself, “There is order here. I just have to find it!” The decline since 1500 hours on Monday is not an impulse as I had originally expected. What I have come up with is a truncated Wave (ii) scenario for today’s move. This may be otherwise known as a “running” Wave (ii), since Wave c has been effectively stopped by the 4.5-year trendline.

****SD: Preparations can be summed up thusly: bunker, canned goods, gold.

Sell in May… or So They Say
Monday marked the first trading day of May. With that flip of the calendar page, investors are wondering whether or not they should follow the old adage: “Sell in May and go away.” Like so many investing adages, there’s an element of truth to this one… and many caveats. Ultimately, your decision to follow or ignore this market-timing strategy depends on how you invest and protect capital.

RMI Applications: Tail Risk Hedging
By Giralda Advisors
In our preceding article [RMI Applications: Sector Rotation Using ETFs], we outlined one practical application of Risk-Managed Investing (RMI) — specifically, a momentum-based sector rotation strategy designed to mitigate the downside risk of protracted equity bear market declines. While this strategy may additionally provide some protection against sudden market crashes, it is not expressly designed to do so.

Stock Weakness Continues, But For Contrarians In The E-mini S&P and SPY, Options Exist
Fred Oltarsh, Forbes contributor
Since the E-mini S&P hit its recent high of 2105.25, the stock market, as represented by the broad based S&P 500, has seen an approximately 3% point correction. Bullish consensus has fallen and the market has clearly wavered. As always, the question is what’s next? For those that believe that the market will regain its footing and move back up to the levels seen just two weeks ago, the E-mini S&P Options provide an opportunity to participate in that move while at the same time exposing themselves to substantial exposure should the market fall approximately 12% between now and June 17th, the expiration date of June Options.

Does Low-Volatility ETF Investing Make Sense?
By John Kimelman, Barron’s
Nervous investors have poured into these defensive stock funds. But are they smart investments?
Many investors are exploring portfolios made up of stocks that tend to swing less than the market as a whole. Photo: Pixabay
As I write these words, the Chicago Board Options Exchange Volatility Index (VIX), the market’s so-called fear gauge, is at a relatively low 16.
But earlier this year, the popular stock-market volatility measure got close to 30 at several points during a topsy-turvy period for stocks. And last August, it hit 53, a 52-week high, on fears emanating from China’s surprise currency devaluation and a dramatic drop in U.S. stocks that ruined many summer vacations.


A Chat With “Chat With Traders”
Aaron Fifield is a developing trader and host of the Chat With Traders podcast. Each week, thousands listen as he interviews successful traders and financial thought-leaders to extract their best insight. His inquisitivity goes beyond the mic. On the trading front, Aaron is learning how to code and pursuing algorithmic trading systems. This week, we’ve turned the tables on Aaron. And here are five questions with him.

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