JLN Options: Analysis: Complex foreign exchange options not ready for prime time; Breaking Down a $5 Million VIX Trade; A Fed Christmas Gift?

Dec 16, 2013

Lead Stories

Analysis: Complex foreign exchange options not ready for prime time
Gertrude Chavez-Dreyfuss – Reuters
Trading forex options on registered U.S. platforms is a long-awaited step in making derivatives markets more transparent, but so far it has failed to take off.
Rules became effective in October that required these trades to move to swap execution facilities, or SEFs. However, there is no established clearing-house for these trades, and with the additional paperwork and legal requirements needed to trade on SEFs, many market players are electing to stick with trading the old-fashioned way, that is, by telephone or on bank platforms.

Breaking Down a $5 Million VIX Trade
Adam Warner – Schaeffer’s Investment Research
[T]he implications of a big VIX call purchase are often misstated (in the media at large, not this particular article), if for no other reason than reports of VIX call action literally never include any context.

A Fed Christmas Gift?
JJ Kinahan – Forbes
Each economic data point packs greater potency when investors fixate on Federal Reserve policy. Complicate the Fed watch with the added volatility that can come with “quadruple witching” contract expiration, plus a credit review for Puerto Rico, and we’re talking about one of the most important trading weeks of the year.

Pivotal Week Ahead – Weekly Market Outlook
Price Headley – CBOE
Kudos to the bulls for quickly stopping the bleeding after Wednesday’s decimation; the market didn’t really budge on Thursday or Friday.  On the other hand, the damage has been done.  Was it enough to tip the scales all the way to the bearish side of things?
It depends who you ask.  We’ll explain exactly what we mean in a moment.   First, let’s run down last week’s economic numbers, and preview this week’s biggies.

Low Vol ETFs Take Their Lumps
Tom Lydon – ETF Trends
As U.S. stocks have soared in 2013, one of last year’s most popular trends in the exchange traded funds world has taken some lumps. Low volatility ETFs, though not surprisingly, have lagged the S&P 500.

‘Tis the Season for a Rally
E.S. Browning – The Wall Street Journal
Analysts have plenty of explanations for the recent stock-price sag, many centering on the prospect the Federal Reserve will trim stimulus as soon as this week.
But there is one that few people have mentioned: Stocks usually do this in mid-December.

Apple to IBM Push Buyback to Record Trading
Whitney Kisling and Callie Bost – Bloomberg
Companies buying their own stock make up more of the U.S. equity market than ever before, underpinning share values even as the Federal Reserve prepares to reduce stimulus.
Stock acquired under company repurchase programs represented 6.4 percent of daily trading in the Russell 3000 Index by value through Sept. 30, exceeding 2007’s level of 4.1 percent, according to data compiled by Bloomberg and Birinyi Associates Inc.

Taper vs Tailwinds
Steven Russolillo – The Wall Street Journal
Call it the battle of the beards: Fed Chairman Ben Bernanke and the potential trimming of the central bank’s market-boosting stimulus, versus the proverbial Santa Claus rally.
Those dueling forces should push and pull on stocks as the end of the year approaches.

Videocast: Unloading VIX protection


CBOE Bets On Volatility Trading
Renee Caruthers – Traders Magazine
The Chicago Board Options Exchange sees opportunity in volatility and aims to drive further growth in volatility trading in 2014 by introducing more new products and expanding extended-hour product offerings.

CBOE, C2, CBSX and CFE Trading Schedule for the Christmas and New Year’s Holidays
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) announced the following trading schedule for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2), CBOE Stock Exchange (CBSX) and CBOE Futures Exchange (CFE) regular trading hours and VIX futures extended trading hours in observance of the Christmas and New Year’s holidays:

Regulation and Enforcement

CFTC correct in row over US Treasury liquidity – Risk.net poll
Lukas Becker – Risk Magazine
The Commodity Futures Trading Commission (CFTC) is right to require central counterparties (CCPs) to have a committed funding backstop in place for US Treasury bonds and other government debt, according to a new Risk.net poll.

CFTC names Mark P. Wetjen acting chairman of the Commission
Press Release (via Futures Magazine)
The U.S. Commodity Futures Trading Commission (CFTC or Commission) today announced that the members of the Commission have unanimously elected Commissioner Mark P. Wetjen to serve as Acting Chairman upon the end of Chairman Gary Gensler’s service.

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