Observations and Insight

We just clicked: John Rizzo brings photography skills globally

Photography is the art of capturing a moment.

John Rizzo has been doing just that for years as the photographer for the FIA Expo events in Chicago. He spoke with John Lothian at Expo about how he learned photography as well as about his photo tours to Africa and Asia. Rizzo has taken photographers of all skill levels to exotic locales such as Tanzania, Ethiopia, Myanmar, Laos and Cambodia to teach individuals about culture and skill of taking a great photo.

A photojournalist who has worked with Newsweek, LA Times, Washington Post and the FIA Magazine and its conferences for years, Rizzo says he’s learned the art of photography. Rizzo said cameras today are better than ever, and take great shots. The problem, he says, is that most people don’t know how to do that.

Watch the video »

Lead Stories

Black-Scholes: Robert Merton on the Options Pricing Model
Robert Merton – BloombergBusinessweek
I bought my first share of stock when I was 10 years old. I came from an academic family. There wasn’t much money. Where I went to trade, they kind of adopted me, because I was a kid. That’s when I first learned about convertible bonds. I would trade at 6:30 a.m. at Caltech. I traded over-the-counter options, especially warrants, and convertible bonds, even though I didn’t know what I was doing. I went to MIT for grad school. I did a joint paper with Paul Samuelson on warrant pricing. That dealt with the option pricing problem, but we didn’t quite crack it.
**JK – Great story on Black-Scholes told by one of the founders, the often un-named Robert Merton.

CBOE Launches Enhanced CBOE.com Website
Press Release – CBOE
The Chicago Board Options Exchange (CBOE) today announced it has released its newly enhanced CBOE.com website, featuring easier navigation and search capabilities, updated and revised educational content, and a responsive design that optimizes desktop, mobile phone and tablet viewing.
***JB:  Nice job on the new site.  As someone who knows a thing or two about websites and their design this should be a case study in how to do an update right.  

VIX Shunned as Few Bumps Seen for S&P 500 at Year’s End
Callie Bost – BloombergBusinessweek
Options traders are confident U.S. equities will glide through December to their third straight yearly advance.
Speculators hold around the fewest options on the Chicago Board Options Exchange Volatility Index in more than two years, while trading in the contracts is the slowest since 2012, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index has gained 12 percent this year to an all-time high, and has climbed for six Decembers (SPX) in a row, posting an average return of 2.2 percent.
**JK – Losing interest in the VIX?

Intercontinental Exchange Completes Acquisition of Majority Stake in Holland Clearing House
Press Release – via Yahoo Finance
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, has completed its previously announced strategic investment in the Holland Clearing House, a continental European derivatives clearing house, to support its comprehensive clearing strategy. ABN Amro Clearing has retained a minority interest.
Holland Clearing House (HCH) is based in Amsterdam and is the primary clearing house for the TOM multi-lateral trading facility. HCH is regulated and supervised in the Netherlands by the Authority Financial Markets (AFM) and the Dutch Central Bank (DNB). Terms were not disclosed.
**JK – For those who don’t know TOM, it’s The Order Machine, an MTF based in Amsterdam. Daily turnover in options on Dec 2nd was 64,067 contracts.

Yen Reaches 120 Versus Dollar First Time Since July 2007
Andrea Wong and Kevin Buckland – BloombergBusinessweek
The yen touched 120 per dollar for the first time since July 2007, as policy makers’ decisions to expand monetary stimulus and delay a consumption tax increase highlight the risks the economy is deteriorating.
The yen has plunged 9 percent since the Bank of Japan on Oct. 31 increased the annual target for expanding the monetary base to 80 trillion yen ($667 billion), and Prime Minister Shinzo Abe delayed a second bump to the sales levy by 18 months, after the first in April sent the economy into recession. Abe is forecast to score a second landslide victory in a Dec. 14 election.

How Long Can Stocks Ignore Spiking Oil Volatility?
Adam Warner – Schaeffer’s Investment Research
There is lots of chatter lately about the drop in crude prices and the pop in volatility of said crude prices. Obviously, there are plusses and minuses associated with the moves. On the positive side — more money in everyone’s pockets! On the downside — well, volatility rarely confines itself to one asset class. But how alarming is this lift?
**JK – Interesting analysis of OVX vs VIX.  

How Long Will Stock Market Volatility Stay Subdued?
Reader poll: What’s among the most depressed asset classes in the world? If you answered “volatility” you’re right on! The problem for volatility bulls (NYSEARCA:VXX) is we haven’t had a sustained level of stock market volatility.  That hardly means a lack of opportunities to profit from short-term volatility exist. The opposite in fact is true.
**JK – Factoid of the day: “Although the VIX is down around 9% year-to-date, it’s experienced jumps of at least 15% or greater 11 times this year – with one of these moments being an 85% gain from mid-September to mid-October.”

New York Life to Buy ETF Provider IndexIQ
Chris Dieterich – Barron’s
Consolidation in the industry for exchange-traded funds is heating up.
New York Life Insurance said Thursday that will buy IndexIQ, a niche ETF provider specializing in hedge-fund like strategies, according to a press release.

India VIX Rebounds From Two-Month Low as Nifty Index Advances
Santanu Chakraborty – Bloomberg
The benchmark gauge of Indian option prices rose for the first time in three days as the benchmark equity gauge advanced.
The India VIX Index climbed 0.6 percent to 12.45 at the close in Mumbai after dropping to a two-month low yesterday. The 50-stock CNX Nifty Index gained 0.3 percent to 8,564.40 after rising as high as 8,626.95, an intraday record.

Fund manager Okumura to oversee Credit Suisse Brazil volatility fund
Guillermo Parra-Bernal – Reuters
Credit Suisse Group AG plans to open a hedge fund in Brazil called Gauss next year to offer new investment alternatives for clients, such as volatility arbitrage, executives said on Wednesday.
The hedge fund, named after “the prince of mathematicians” Carl Gauss, will be managed by Fabio Okumura, former head of proprietary trading at Itaú Unibanco Holding SA, whom Credit Suisse hired in March. The fund should begin raising money next year, said José Olympio Pereira, Credit Suisse’s chief executive in Brazil.


Citigroup to shutter LavaFlow stock trading venue
John McCrank – Reuters
Citigroup Inc (C.N) is shutting down its alternative stock trading venue LavaFlow, the bank said on Tuesday, at a time when regulatory scrutiny has increased around broker-run trading platforms, forcing banks to rethink the costs.
Critics say the alternative stock trading venues add to the fragmentation of the market, increasing complexity and costs for market participants.

Intercontinental Exchange and Eris Exchange Announce Global Swap Futures Licensing Agreement
Press Release – ICE
Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, and Eris Exchange (Eris), a US-based futures exchange group, today announced a multi-year license agreement for ICE exchanges to list futures and options based on the Eris MethodologyTM, Eris’ patent-pending product design for constructing swap futures in a capital-efficient manner.

BATS Reports November Volume & Activity: Best Month In Europe This Year With 22.9% Market Share
Press Release – BATS
BATS Global Markets (BATS) today reported November volume, market share, and monthly highlights including the strongest month this year in Europe, with 22.9% market share.
http://jlne.ws/1yRPcoz (PDF)

BOX Price Improvement Activity for November
Press Release – BOX
In the month of November, price improved contracts on BOX Options Exchange (“BOX”) averaged 210,140 per day, which represented a 45% increase over the same period last year. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $346,858 per day, while total savings to investors this month was $6.6M. With this, BOX has saved investors over $562M since its inception in 2004. Overall average daily trading volume on BOX in the month of November was 329,288 contracts, which represented a 5% decrease over the same period last year.
http://jlne.ws/1yjpLye (PDF)

Regulation and Enforcement

Agreement Deadline on EU Financial Transactions Tax Could be Missed
Viktoria Dendrinou – WSJ
Eleven European Union countries that have pledged to impose a tax on financial transactions look set to miss a self-imposed deadline for a deal by the end of the year, according to a document seen by The Wall Street Journal.
The group, which includes France and Germany, agreed to push ahead with a planned tax on share and derivative trades, after discussions for an EU-wide financial transaction tax broke down in 2012. But agreeing on what instruments to tax—and who should get the money—has proved difficult and participating countries now seem close to missing their deadline for agreement by the end of 2014, so that the tax can be implemented by 2016.

Swaps Clearinghouses Need Greater Oversight, CFTC’s Wetjen Says
Silla Brush – Bloomberg
Clearinghouses meant to reduce swaps market risk must face greater oversight to ensure they don’t threaten the financial system, according to a member of the U.S. Commodity Futures Trading Commission.
Regulators should weigh having clearinghouses put up more of their own capital in the event of a default and requiring them to undergo standardized stress tests, Commissioner Mark P. Wetjen said in remarks prepared for a Futures Industry Association conference in Singapore today.


Deutsche Börse expands offering of Eurex Exchange analytics with new options liquidity data
Press Release – via HedgeWeek
Deutsche Börse Market Data + Services has launched “Eurex IOC Liquidity Indicator for Options,” an analytics product that provides insight into the liquidity of the most widely traded options available on Eurex Exchange.


Stupid Options Trade Or Smart VIX Trade?
Scott Nations – ETF.com
Volatility-based ETFs have exploded in popularity since the iPath S&P 500 VIX Short-Term Futures ETN (VXX | A-47) launched in January 2009. VXX is the most popular exchange-traded security focused on volatility, and average daily trading volume is now more than $1.7 billion, according to ETF.com Analytics.
But skeptical traders have to ask, should it be the most popular?

Goldman: Sinking Oil to Hurt Select Industrials
Steven M. Sears – Barron’s
Industrial stocks, which are often ignored by investors due to their heft and complexity, are vulnerable, says Goldman Sachs, which argues that the impact of plunging oil prices is not reflected in share prices.
This may change, however, in the next few weeks as many industrial companies host investor day meetings to update Wall Street on earnings, operations, and strategies.

Options Eduction

Why Should I Want to Learn about Options?
Mark Wolfinger – About Money
To the investor who is thinking about trading options
Perhaps you have heard something about call options and/or put options, but have not begun the process of understanding how an option works. If you know nothing about options, this article is directed to you. It’s purpose is to introduce the topic to those investors who are unfamiliar with stock options.


Options Alliance Annual Conference Dec 8
Join us on December 8 for a deep dive into the exploding world of financial startups. Meet and mingle with your fellow entrepreneurs as you learn how to market, grow and fund a wide range of financial startups. The program begins at 1 pm at the Arditti Center for Risk Management at DePaul University’s Chicago Loop campus. The three panels cover the marketing, growth in AUM and funding of startup firms. A networking cocktail reception follows.
***Panelist firms include OIC, CME Group, Tradelegs, RCM Asset Management and more.

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