Observations and Insight

Bigger Piece of the Pie
The OCC’s monthly marketshare and volume figures were released yesterday. Stay tuned for one of the more interesting developments in tomorrow’s newsletter. You might be surprised at who is moving up the ranks. Here’s a table of January’s figures.

Jan 2015 Options Volume

Lead Stories

Bullish HKEx Bets at Highest Since 2011 on China Shares: Options
Jonathan Burgos – Bloomberg
Bullish bets on Hong Kong Exchanges & Clearing Ltd. cost the most in almost four years amid optimism that demand for Chinese shares listed in the city will boost trading volume.
Calls that pay should the world’s second-biggest exchange operator by market value rally 10 percent cost 7.7 points more than equivalent bearish bets as of Jan. 27, the widest gap since February 2011, three-month data compiled by Bloomberg show. Hong Kong Exchanges shares will extend gains this year, after rallying 33 percent in 2014, as higher equities volume and contributions from the London Metal Exchange drive earnings growth, according to Bank Julius Baer & Co. and BNP Paribas SA.
***DA: Nice to be a stock in which all the fear is to the upside.

Surprise! Investors Face Need to Expect the Unexpected on Rates
Simon Kennedy – Bloomberg
Another day, another central banking surprise.
Today it was the Reserve Bank of Australia’s turn to wrong-foot investors. Just seven of 29 economists surveyed by Bloomberg News anticipated the 25 basis-point cut in its benchmark interest rate to a record low of 2.25 percent.
***DA: That is a greater percentage than those who called the last several recessions.

Volatility Continues As Earnings Reports Create Excitement And Despair
Scott Martindale – Seeking Alpha
Volatility reigned in January on elevated volume as stock investors shifted their focus from global events to U.S. earnings reports, which have ranged from amazing (e.g., Apple) to crushing (e.g., Microsoft). Although the earnings reports have brought plenty of surprises, the volatility is no surprise, as I and many other market commentators predicted for the new year.
***DA: I think he means EVERY other market commentator.

VIX All-Nighters: The Good, The Bad, and The Ugly
Adam Warner – Schaeffer’s Investment Research
You know that disappointed feeling when you wake up at 3 a.m. and want to buy some CBOE Volatility Index (VIX) calls, but the market hasn’t opened yet? Well, guess what? You can kiss those days goodbye!
***DA: When I made a trade at 3 a.m. the only thing I would kiss goodbye is money.

Checking in on Oil Volatility
Russell Rhoads – CBOE Options Hub
Oil was the headline grabbing market for the last few months of 2014. For months the price of oil has continued to violate any sort of support levels that technical analysts can come up with. January’s average OVX close was just over 55. This was the highest average for a month since the tail end of the Great Financial Crisis in April 2009. The chart below shows the average daily close by month for OVX since mid-2007 through January 2015.
***DA: The market seems to have turned on Friday and is showing some follow through as well.


GFI Urges Shareholders to Wait on BGC Offer, Seeks Alternatives
Steven Dickson – Bloomberg
GFI Group Inc. urged its shareholders to take no action on a bid by BGC Partners Inc. to acquire the company.
“The GFI board is actively engaged in a process to explore strategic alternatives with any and all interested parties to maximize shareholder value for all shareholders,” New York-based GFI said Monday in a statement.

Exchanges make strong trading start to 2015
Alice Attwood and Cian Burke – Futures & Options World
Some of the world’s top exchanges made a busy start to the year, reporting solid volumes in January, but they failed to match some of the extreme volatility seen late last year.
Singapore Exchange volume was in January up two thirds on the same month last year, CME Group was up a fifth and Eurex was up single-digits.

CBOE Holdings Reports January 2015 Trading Volume
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that average daily volume (ADV) during January for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) and futures contracts on CBOE Futures Exchange (CFE) was 5.4 million contracts, an increase of five percent from December 2014 and a decrease of seven percent from January 2014. Monthly ADV at CBOE, C2 and CFE each posted increases over December.
Total options and futures volume at CBOE Holdings during January was 107.2 million contracts, a decrease of five percent from the previous month and a decrease of 12 percent from a year ago.

CBOE Futures Exchange Reports January 2015 Trading Volume
Press Release – CBOE
CBOE Futures Exchange, LLC (CFE) today reported that January 2015 monthly average daily volume (ADV) and monthly total volume, both for exchange-wide at CFE and futures on the CBOE Volatility Index (VIX Index), rose from year-ago levels.
VIX Futures
January average daily volume in VIX futures was 228,436 contracts, an increase of nine percent from January 2014 and up one percent from December 2014. Total volume in VIX futures for January was 4.6 million contracts, up four percent from a year ago and down eight percent from the previous month.

ISE Holdings Reports Business Activity for January 2015
Press Release – ISE
ISE and ISE Gemini combined represent 13.6% of equity options market share, excluding dividend trades.
ISE and ISE Gemini reported a combined ADV of 2.2 million contracts.
Dividend trades made up 0.5% of industry volume in January 2015.

CME Group Volume Averaged 15.6 Million Contracts per Day in January 2015, Up 21 Percent from January 2014
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that January 2015 volume averaged 15.6 million contracts per day, up 21 percent from January 2014.  Total volume for January 2015 was more than 312 million contracts, of which 87 percent was traded electronically.  Options volume in January averaged 3.1 million contracts per day, up 22 percent versus January 2014, with electronic options growing 35 percent over the same period.

CME Posts FX Volumes Decline by 1% in January, But Option Trading Grows
Ron Finberg – Forex Magnates
Early indications are that despite last month’s black swan Swiss franc event, FX volumes traded in January have remained around the strong levels experienced during the last four months of 2014. Figures from the CME Group support this notion, with average daily volumes (ADV) of futures and options only declining slightly by 1% to 945,940** contracts when compared to December 2014’s activity.

OCC Announces Average Daily Cleared Contract Volume Declined 5% in January
Press Release – OCC
OCC announced today average daily cleared contract volume for the month of January was down 5 percent from January 2014 with 17,919,276 contracts and one less trading day. Total OCC cleared contract volume in January reached 358,385,522 contracts, a 9 percent decrease from the 2014 record January volume of 395,595,620 contracts. Despite this decline, January 2015 represents the fourth highest January volume for OCC to date.

Options Exchange Marketshare – January, 2015
via email – OCC

January 2015 Total Options Marketshare:
AMEX-                    7.45%
BATS-                     8.78%
BOX-                       2.81%
CBOE-                   27.04%                                                            
C2-                          2.02%
GEM-                      1.91%
ISE-                        10.40%
MIAX-                     4.38%
NOBO-                    0.62%
NSDQ-                    9.46%
NYSE Arca-            9.48%
OMX PHLX-         15.65%

January 2014 Total Options Marketshare:
AMEX-                  11.85%
BATS-                      3.28%
BOX-                        1.68%
CBOE-                    28.35%
C2-                            1.68%
GEM-                        2.95%
ISE-                         13.11%
MIAX-                      2.65%
NOBO-                     0.85%
NSDQ-                      9.42%
NYSE Arca-              9.71%
OMX PHLX-            14.47%

January 2015 Equity Options Marketshare:
AMEX-                    8.04%
BATS-                      9.67%    
BOX-                        3.09%
CBOE-                    20.01%
C2-                            2.21%
GEM-                        2.11%
ISE-                         11.44%
MIAX-                       4.83%
NOBO-                     0.68%
NSDQ-                     10.41%
NYSE Arca-             10.30%
OMX PHLX-            17.21%

January 2014 Equity Options Marketshare:
AMEX-                  13.09%
BATS-                      3.63%
BOX-                       1.86%
CBOE-                   20.81%
C2-                           1.85%
GEM-                       3.27%
ISE-                        14.50%
MIAX-                      2.94%
NOBO-                     0.94%
NSDQ-                   10.43%
NYSE Arca-            10.65%
OMX PHLX-           16.02%

Regulation and Enforcement

S.&.P. Announces $1.37 Billion Settlement With Prosecutors
Dealbook – NY Times
Nearly a decade after credit rating agencies fed a subprime mortgage frenzy that imperiled the global economy, one of the industry’s biggest players now faces a costly reckoning.
Standard & Poor’s, a rating agency accused of inflating its assessment of mortgage investments that spurred the 2008 financial crisis, said on Tuesday that it had agreed to pay $1.37 billion to settle wide-ranging civil charges from the Justice Department as well as 19 state attorneys general and the District of Columbia. S&P. also signed a statement of facts that outlined its role in the mortgage crisis, but the ratings agency did not admit to wrongdoing, securing a major concession from the government.
***JB:  Played a major role in causing $2.8 trillion in losses globally and pay $1.4 billion fine and get to say they did nothing wrong and shareholders are ultimately the ones who pay for it.  Neat.   Imagine I burnt down your $500,000 house and had to pay a $250 fine and get to say I didn’t do anything wrong.  What could be more fair than that?

Obama Seeks More Money for Agencies Enforcing Dodd-Frank Rules
Silla Brush and Dave Michaels – Bloomberg
President Barack Obama is making a renewed push to boost funding for Wall Street’s top cops after regulators said budget constraints were keeping them from enforcing rules put in place after the financial crisis.
The funding requests for fiscal 2016, released by the White House Monday as part of a broad spending proposal for the federal government, would raise the Securities and Exchange Commission’s budget 15 percent to $1.7 billion. The Commodity Futures Trading Commission, the main U.S. regulator of the $700 trillion global swaps market, would get a 29 percent increase to $322 million.
***JB: Congress will doubtless love this part. (sarcasm alert)

U.S. retail brokers, to avoid regulators’ wrath, disclose more
John McCrank and Jed Horowitz – Reuters
U.S. retail brokers, looking to combat claims that they fail to get the best possible prices on trades for their mom-and-pop customers, plan to give clients more information about how their trades are executed.
Regulators at the U.S. Securities and Exchange Commission are looking at whether discount brokers have conflicts that result in individual investors missing the best possible deal when buying or selling shares.

Canadian regulator warns against unregulated binary options brokers OptionMint, OptionQueen and BinaryPays
Increasingly vigilant Canadian provincial regulatory authority, the Ontario Securities Commission (OSC), has issued a warning to potential investors about a series of binary options brands which are not licensed to operate or conduct business in the province of Ontario.

Options Education

The Anatomy of Options
Ian Harvey – Investopedia
It is important for options traders to understand the complexity that surrounds options. Knowing the anatomy of options allows traders to use sound judgment, and it provides them more choices for executing trades.

Warrants: Options On The Future
Dudley Pierce Baker – Investing.com
Have you ever explored the numerous opportunities available using stock warrants? Probably Not!
Virtually everyday in the news with companies reporting a stock offering, either a private placement or a public offering, more often than not, stock warrants are attached to the offering.


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