JLN Options: Bourse Link Guessing Game Fuels Hong Kong Stock Wagers; U.S. Banks See Worst Outflow of Money in ETF Since 2009; Blaming Easy Money for Alien Invasions

Oct 28, 2014

Observations and Insight

Charlotte Crosswell, CEO, Nasdaq OMX NLX – Startups Aren’t Just Found in Garages

“When people are sitting there talking about you and criticizing you or doing something against you, that means they’re taking notice.”

Charlotte Crosswell, CEO of Nasdaq OMX NLX, talks about her introduction into the financial industry and how she found herself in her current role. Beginning with a temporary position at Goldman Sachs, Crosswell assisted a salesperson who needed someone who understood French. She later moved on to the London Stock Exchange and has been in the exchange world ever since. Because of her own experiences, Crosswell emphasizes the importance of work experience versus just having a degree. Crosswell also discusses startup companies and how despite having the Nasdaq name, Nasdaq OMX NLX is still considered a startup in which she still works persistently to keep relationships with investors. Finally, Croswell discusses how being tough and having “the skin of a rhino” is necessary, especially in startups, to keep yourself protected from critics and opposition.

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Lead Stories

Bourse Link Guessing Game Fuels Hong Kong Stock Wagers
Option wagers on Hong Kong stocks rose to the highest level this year as regulators’ silence over the timing of an exchange link with Shanghai prompted traders to prepare for rising volatility.
The number of outstanding contracts on the Hang Seng Index climbed to 337,540 yesterday, the most since December 2013, while trading of puts and calls on Hong Kong Exchanges & Clearing Ltd. (388) was 54 percent higher than this month’s average. The equity gauge sank 0.7 percent after HKEx Chief Executive Officer Charles Li said regulators haven’t signed off on the link and he has no idea when it will begin. Brokers were expecting to make their first cross-border trades this month.
***DA: Playing short-dated options on the timing of a regulatory sign-off is a fool’s errand.

U.S. Banks See Worst Outflow of Money in ETF Since 2009
Madeline McMahon – Bloomberg
The Financial Select Sector SPDR (XLF), an exchange-traded fund targeting banks and investment firms, had the biggest withdrawal last week since 2009 amid concern that low interest rates and market swings will hurt profits.
Investors pulled $913.4 million from the $17.5 billion ETF, whose top holdings include Berkshire Hathaway Inc. (BRK/B), Wells Fargo & Co. and JPMorgan Chase & Co. (JPM), a shift that turned its flow of funds negative for the year. About 143 million shares of the ETF have been borrowed and sold to speculate on declines, the most since June 2012, according to exchange data compiled by Bloomberg.

Blaming Easy Money for Alien Invasions
Noah Smith – Bloomberg
Sometimes I feel like if aliens opened a wormhole and invaded the solar system tomorrow, there are people who would immediately start writing articles blaming the incursion on the Federal Reserve’s program of quantitative easing.
Niall Ferguson, Harvard historian and outspoken political and economic commentator, might be one of those people. On Oct. 24, Ferguson penned a column in the Wall Street Journal blaming QE for the stock market volatility of Oct. 15.
***DA: Silly analogy. Easy money policies have detached the market from long-term fundamentals to the extent that policy moves are more widely watched as a stock market predictor than true fundamental analysis.

Pro: History suggests 7% pullback coming
Lee Brodie – CNBC
They say history repeats itself. If that’s true investors are looking at more bouts of volatility.
In an interview on CNBC’s “Closing Bell,” Liz Ann Sonders of Charles Schwab said patterns in the market suggest there’s every reason to think a bumpy ride may lie ahead.
***DA: The market has already fallen 10 percent and bounced back about seven. If we head back toward the lows it will not end there.

Ibovespa’s Volatility Rivals Greece After Presidential Vote
Denyse Godoy – BloombergBusinessweek
The Ibovespa’s swings between gains and losses climbed to a three-year high after Brazil’s closest presidential election since 1945.
The stock index’s 30-day volatility (IBOV:US) rose to 41.08 percent today, the highest level since September 2011 and trailing only Argentina and Greece among 72 global equity gauges, according to data compiled by Bloomberg. The Ibovespa added 3.6 percent at the close of trading in Sao Paulo after slumping as much as 6.2 percent yesterday, the first day after the runoff vote.

Two Numbers: Did Stocks Just Stumble or Start to Crash?
Anna Bernasek – Newsweek
Reading his own obituary 13 years before his actual death, Mark Twain observed, “The report of my death was an exaggeration.” Sixty-six months into the current bull market on Wall Street, a growing number of stock market analysts have trumpeted the end of its long run.
Fears that global economic growth is slowing and some parts of the world, like Europe, could be heading back into recession have fueled recent speculation about the death of the bull market. Yet so far, despite a sell-off in October, the bulls are holding on. If this keeps up, November would mark the 67th month of the current long run, which happens to be equal to the average duration of a bull market in U.S. stocks.

Bears Pile Into Facebook Options Ahead of Earnings
Saumya Vaishampayan, The Wall Street Journal
The bears are piling into the options market to make bets ahead of Facebook Inc.FB +0.61%’s third-quarter earnings.
The social network is scheduled to report after the market closes on Tuesday.

Currencies Flag More Volatility Ahead
Mark Gilbert – Bloomberg
The volatility in equity and bond markets that bloodied investors this month has become a little more tame lately, so there’s some reason to hope the worst is over. My worry is that this may be misleading, because the much bigger — and often smarter — currency markets are less reassuring.


CME Group interested in buying Korea Exchange stake if shares for sale
The head of CME Group has expressed interest in buying a stake in South Korea’s main exchange operator if Korea Exchange Inc offers to sell some of its shares, CME’s South Korea representative Hong Sung-hee said on Tuesday.
Korea Exchange spokesman Noh Byung-soo said he was aware of CME Chief Executive Phupinder Gill’s remarks but said the exchange had no plan to sell shares.

CME eyes Korea Exchange stake
Simon Mundy in Seoul, The Financial Times
CME Group is considering buying a stake in the Korea Exchange (KRX), the US company’s chief executive said, amid fierce competition among leading exchange operators to expand their presence in Asia.
“It would make sense for us, if allowed, to participate in the upside of the exchange, particularly as we are planning to help the exchange on an international expansion,” said Phupinder Gill, CME chief executive.

LedgerX Hopes to Establish First U.S.-Regulated Options Exchange for Bitcoin – Venture Capital Dispatch
Yuliya Chernova – WSJ
A new startup out of New York called LedgerX LLC has recruited big financial-industry names to its board of directors and raised venture funding from Lightspeed Venture Partners, Google Ventures and others to add a dose of legitimacy to the bitcoin market.
LedgerX hopes to become the country’s first bitcoin options exchange with Uncle Sam’s blessing. It submitted applications to the U.S. Commodity Futures Trading Commission, or CFTC, which regulates U.S. futures and options exchanges, in late September to be approved as a derivatives exchange with bitcoin as the underlying asset to be traded, according to LedgerX co-founder and Chief Executive Paul Chou.


OptionsCity Reveals Metro NOW, Empowers Users to Build a Customized Trading Experience    
OptionsCity Press Release  
Chicago, October 29, 2014 – OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that the next generation software of its flagship trading platform, Metro NOW, will be available early next year. This web-deployed solution opens up the world of downloadable widgets to a range of users, allowing them to streamline their trading environment to fit their specific trading style.


Two SPX Charts To Watch: Fibonacci & V-Shaped Bottom
Moby Waller – CBOE Options Hub
We recently showed some very long term charts going back to 2009 to get big picture perspective for the broad stock market. But a more apt trend to focus on in the near-term is a bit shorter trend (although it is still fairly long). First is the S&P 500 Index (SPX) (SPY) stripped down, ‘clean’ chart from the November 2012 key low to the recent September 2014 all-time high (which for now is a key high). Beyond that, we’ve also pictured a more indicator-filled chart comparing the recent ‘V’ stock market reversal bottom to the one that occurred in Jan/Feb 2014.

Is It Time to Bargain Hunt Brazil?
Adam Warner – Schaeffer’s Investment Research
We interrupt our regularly scheduled CBOE Volatility Index (VIX) and Ebola coverage to bring you… Brazilian election updates!Why does this matter? I mean, as far as I knew, Neymar was the president of Brazil. Apparently, the “pro-business” candidate lost, which served to set up quite the ugly open in Brazil.

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