Observations and Insights

Happy 10th Anniversary, VIX Futures!
by Sarah Rudolph

Today is the 10 year anniversary of the launch of VIX futures, traded at the CBOE Futures Exchange (CFE).

CFE has achieved tremendous success with these futures, based on its proprietary CBOE Volatility Index (VIX). It has also expanded into other volatility-based products, as volatility as an asset class has exploded in recent years. There are currently eight VIX-related contracts traded on the CFE.

But the CBOE still thinks of VIX futures as a relatively new product, with much more to come in the near future.

Jim Lubin, senior managing director of CBOE Futures Exchange, said the past few years have been a great time for the volatility space.

“The VIX futures for the first time enabled the trading of volatility through an exchange-listed instrument,” he said. “But we are only starting to hit our stride.”

The exchange has been hard at work developing the domestic (U.S.) marketplace, and continues to see new users of VIX futures here, who take advantage of a number of investment strategies employing volatility in diversified portfolios, volatility portfolios, and equity-only portfolios, he added.  

Now the rest of the world is starting to take note of the VIX products, and the exchange is starting to expand internationally.  It began last fall by adding another 45 minutes to U.S. trading hours for the VIX futures, for domestic users that wanted access to the contract after the traditional close of business.

They followed that up by expanding hours during the European time zone, adding five hours so that the trading day starts at 2:00 am Chicago time, which coincides with the London market opening at 8:00 am.

“That has met with tremendous success, for example as the crisis in the Ukraine occurred, folks wanted access to the VIX futures at that hour to hedge market volatility,” Lubin said.

The natural extension now is into the Asian time zone, he said, which would bring the exchange to nearly 24 hour trading time. The CFE plans to start offering trading in that time zone starting June 22, when the trading day will begin at 3:30pm the previous day (Chicago time) and run to 3:15pm the following day. That gives traders a 23 ¾ – hour period, with a brief 15-minute closing between the two sessions, Lubin said.

“The road is wide open for us to reach a broader global user base. 10 years is just one milestone along the way,” he added.

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Exchange CEO Series – World View: Nasdaq OMX’s Bob Greifeld looks at regulation, tech resiliency and partners

Nasdaq OMX, like every exchange, is trying to navigate the new regulatory landscape. But Bob Greifeld, CEO of Nasdaq OMX, said there are more opportunities to be had, beyond the new rules.

John Lothian News sat down at the 2014 FIA Boca Conference with six exchange CEOs to talk about their views on four main topics: competition, regulation, growth and technology. Here’s what Greifeld, CEO of Nasdaq OMX, had to say about each.

Greifeld, like other exchange CEOs, believes that regulation is the key driver of competition and change in the financial industry, globally today.

“If you think about the evolving nature of the markets, you have to start first and foremost with the regulation,” he told Jim Kharouf, editor-in-chief of John Lothian News. “We are a creature of the regulatory environment.”

Watch the video »

Lead Stories

Behind the massive trade that took down the market
Alex Rosenberg, CNBC   
After a positive start to Wednesday’s session, the stock market took a serious intraday slide that saw it lose more than half a percent in half an hour, and took the S&P from positive to negative on the day.
While an especially strong five-year Treasury note auction is another likely culprit in the intraday decline, many traders blamed the turnaround on a massive bearish options trade on the S&P 500 that was effectively a multibillion-dollar short bet on the market.

Why Traders Are Spooked
By Steven M. Sears, Barron’s
Conspiracy theories abound, and some investors lose big on unusual S&P pricing. If the cause was fear of rising rates, the problem may return.
The hot topic Tuesday on Wall Street was far from ordinary, and had little to do with the usual worries about economic growth, Russia’s invasion of Ukraine, or China’s wobbly financial market.
Traders were scratching their heads, and even spinning conspiracy theories, about the unusual aftermath of Friday’s expiration of futures and options.

VIX drops as equities push higher
Chris McKhann, optionMONSTER
The major indexes mostly rose yesterday, sending the VIX down sharply.
The S&P 500 climbed 8.18 points to 1865.62 and touched its intraday high of 1872 less than an hour after the opening bell. It then fell briefly into negative territory, testing 1856. Resistance is at 1880 and 1840 is support.

Mexican Peso Volatility Falls as Secondary-Law Plans Published
By Alexandria Baca and Ben Bain, Bloomberg
The Mexican peso’s implied volatility fell to a 10-month low on speculation lawmakers will approve rules implementing constitutional changes that the government says will boost growth.
One-month implied volatility on options for the peso, which reflects traders’ projections of price fluctuations, decreased to 8.49 percent at 1:29 p.m. in Mexico City, according to data compiled by Bloomberg. The peso dropped for the first time in five sessions, falling 0.1 percent to 13.1323 per dollar.

Wall Street lower in volatile trading; tech, materials down
By Angela Moon, Reuters
U.S. stocks edged lower in the afternoon on Wednesday, led by losses in the materials and technology sectors.
Trading was choppy with U.S. stocks mostly positive in the morning after U.S. economic data pointed to improving conditions. But they reversed course in the afternoon as technology stocks turned sharply lower.

LiquidPoint to Market Livevol Options Platforms
Press Release
ConvergEx Group, a leading provider of global brokerage and trading-related services, today announced that its LiquidPoint options technology business will become the exclusive reseller of the Livevol options scanning, analysis and trading platforms.

World Federation Of Exchanges (WFE) Launches Sustainability Working Group – Global Stock Exchanges Commit Attention To Sustainability Among Stakeholders
The World Federation of Exchanges (WFE) has formed a new sustainability working group at its Working Committee meeting in Mumbai last week. The new Sustainability Working Group is comprised of representatives from a diverse array of global stock exchanges with a mandate to build consensus on the purpose, practicality, and materiality of Environmental, Social, and Governance (ESG) data.

New Binary Options Trading Service Takes Bitcoin-Only Payments
Jon Matonis,  CoinDesk
A new service for financial options has launched a beta website for nine different binary options, including gold, silver and crude oil, plus six foreign exchange pairs.

***SR: Binaries and bitcoins…together at last…???


CBOE Holdings Director Sells $1,356,260 in Stock (CBOE)
Posted by Nolan Pearson, WKRB
CBOE Holdings Director William J. Brodsky sold 24,345 shares of CBOE Holdings stock in a transaction that occurred on Monday, March 24th. The shares were sold at an average price of $55.71, for a total value of $1,356,259.95. Following the sale, the director now directly owns 327,313 shares in the company, valued at approximately $18,234,607. The transaction was disclosed in a filing with the Securities & Exchange Commission.

Happy Birthday, VIX Futures!
A look back at the 2004 launch of VIX futures
by Adam Warner, Schaeffer’s Investment Research
Do you remember where you were 10 years ago today? If you were a CBOE trader back then, that date might ring a bell. It marked the birth of tradable CBOE Volatility Index (VIX) futures!


SEC Probes Threat From Cyber Attacks Against Wall Street
By Dave Michaels and Chris Strohm, Bloomberg
The U.S. Securities and Exchange Commission is examining the exposure of stock exchanges, brokerages and other Wall Street firms to cyber-attacks that have been called a threat to financial stability.
The SEC held a roundtable discussion of those risks in Washington today as it weighs a proposal to require stock exchanges to protect their critical technology and tell members about breaches of important systems. More than half of exchanges surveyed globally in 2012 said they experienced a cyber-attack, while 67 percent of U.S. exchanges said a hacker tried to penetrate their systems.

COMMENTARY: Why the Market Should Care About Proposed Clearing Agency Requirements
Annette Nazareth and Jeffrey Dinwoodie, Traders Magazine Online News
On March 12, the SEC issued a 400-page rule proposal that, if adopted as proposed, would impose a multitude of new compliance requirements on The Options Clearing Corporation (“OCC”), The Depository Trust Company (“DTC”), National Securities Clearing Corporation (“NSCC”), Fixed Income Clearing Corporation (“FICC”) and ICE Clear Europe.  Since these clearing agencies play a fundamental role in the options, stock, debt, U.S. Treasuries, mortgage-backed securities and credit default swaps markets, the proposed requirements have important implications for banks, broker-dealers and other U.S. securities market participants, as well as securities exchanges, alternative trading systems and other trading venues.


Interesting EL Put And Call Options For May 17th
Investors in Estee Lauder Cos., Inc. (NYSE: EL) saw new options begin trading this week, for the May 17th expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the EL options chain for the new May 17th contracts and identified one put and one call contract of particular interest.

The BP Trade That Could Double Your Money
By Steven M. Sears, Barron’s
BP is starting to glow hot in the options market.
An institutional investor recently bought 10,500 July $47 calls when the stock was at $46.39. The trade may not seem like a big deal, but BP (ticker: BP) practically trades by appointment in the options market.

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