JLN Options: Calmest Options Markets in 12 Years as Fed Boosts Confidence; Volatility buyer targets silver fund; Videocast: Big call spread in VIX

Jan 6, 2014

First Impressions

Dan Hubsher

Flex Time: Object Trading’s Dan Hubscher on Shedding Operational Complexity
JohnLothianNews.com
From a flurry of new regulations and rapid changes in market structure to constant updates from exchanges, simple, flexible infrastructure has never been more important in the trading world. John Lothian News spoke with Dan Hubscher of Object Trading on the topic of shedding operational complexity and what they found from their most recent research.

Watch the video »

Lead Stories

Calmest Options Markets in 12 Years as Fed Boosts Confidence
Nikolaj Gammeltoft and Liz Capo McCormick – BloombergBusinessweek
Markets for stocks, currencies, bonds and commodities are the calmest in at least 12 years amid investor confidence that central bank stimulus is spurring economic growth.
Expectations for price swings have fallen to the lowest on record for 29 assets, including U.S. equities, interest rates, the euro and oil, based on data since 2002 compiled by New York-based hedge fund Lake Hill Capital Management LLC.
http://jlne.ws/1eCJw6y

Gold market ‘flash crash’ explanations vary from ‘fat finger’ to ‘price manipulation’
Myra Saefong – MarketWatch
Gold futures suffered a sudden, brief drop in prices early Monday on the Comex division of the New York Mercantile Exchange, with market watchers blaming the move on everything from a “fat finger” to trader liquidation to price manipulation.
http://jlne.ws/1eCI985

The changing landscape of Europe’s equity derivatives market
Jonathan Watkins – FOW
Europe’s single stock futures and options markets have been traditionally dominated by local exchanges, but as competition increases, the landscape could be set to change across the continent.
http://jlne.ws/1eCKgc6

Volatility buyer targets silver fund
Chris McKhann – optionMONSTER
Traders are looking for volatility in the iShares Silver Fund.
optionMONSTER’s tracking systems detected the purchase of 5,000 January 2016 13 puts for $0.80 and the purchase of 5,000 January 2016 32 calls for $0.74. The previous open interest at both strikes was less than 1,000, so this was a new opening position.
http://jlne.ws/1eCPJj1

Videocast: Big call spread in VIX
optionMONSTER
http://jlne.ws/1eCPR22

VIX in 2013
Russell Rhoads – CBOE
As the year that was 2013 wore on a common question that was lobbed at me was, “Is the VIX broken?”. I’m not sure how an index can be broken, that would be if something went wrong during the calculation of VIX. I know the question really was more like, “Is VIX telling me anything?”, since VIX basically behaved differently than any year since 2007.
http://jlne.ws/1eCMCYd

How Wall Street got snowed on weather derivatives
Stephen Gandel – CNN Money
Wall Street is no longer minting money off the snow. But it’s still trying.
A few years ago, the market for financial contracts based on snowfall was, for lack of a better phrase, heating up. More and more firms began popping up to sell the specialized weather derivatives.
http://jlne.ws/1eCMXKw

Volatility Trading Digest – New Year Market Forecast
The Options Insider
When comparing selected forecasts made this time last year to actual results it seems like they must have been looking at completely different sets of data. Although there was a long list of economic worries that could sink the equity markets last year, with considerable help from the Federal Reserve the S&P 500 Index managed to end the year with the same upside momentum it showed in the first few days, closing up 29.6% for the year – a truly remarkable performance.
http://jlne.ws/1eCP016

Exchanges

Euronext Said to Plan Sale of Up to 30% Stake Before IPO
Nandini Sukumar – Bloomberg
IntercontinentalExchange Group Inc. plans to sell as much as 30 percent of Euronext NV before the operator of the Paris and Amsterdam exchanges goes public this year, three people with knowledge of the matter said.
http://jlne.ws/1eCQuIY

OCC Completes Executive Leadership Transition Plan, Expands Management Team
Press Release (OCC)
OCC announced today it has completed its executive leadership transition plan. Effective immediately, Craig S. Donohue assumes the role of Executive Chairman, with Michael E. Cahill becoming President and Chief Executive Officer. In his role as Executive Chairman, Mr. Donohue will preside over OCC Board meetings and will be responsible for OCC’s control functions (Enterprise Risk Management, Internal Audit and Corporate Compliance) and external affairs (Government Relations and Corporate Communications/Options Industry Council). As President and CEO, Mr. Cahill will provide oversight for day-to-day business operations, overseeing Technology, Risk Management, Business Operations, Finance and Legal Affairs.
http://jlne.ws/1eCEQxM

BATS Global Markets Reports New Market Share Records in Spain and Europe DRs
Press Release (BATS)
January 6, 2014 – BATS Global Markets (BATS) today reports new monthly market share records in Europe – 9.8% in Depositary Receipts (FTSE RIOB) trading and 15.8% in Spain’s IBEX 35 – while remaining the largest stock exchange in the region.
Monthly overall European market share was 21.7% in December while, in the U.S., BATS reported 9.9% market share in U.S. equities and 2.3% in U.S. options.
http://jlne.ws/1cIGieB (PDF)

Regulation and Enforcement

PROFILE-Swaps regulator Gensler: banker turned Wall Street scourge
Douwe Miedema – Reuters
As Gary Gensler wraps up his last day as the head of the U.S. Commodity Futures Trading Commission on Friday, he leaves behind a long list of ardent admirers of his tough-nosed reforms and passionate critics who believe he has injured well-functioning markets.
http://jlne.ws/1eCL1BS
**Scourge?  Injured the markets?  Seriously?  The markets finished 2013 with record highs.  Unless the contention is someone would have made $1.1 billion instead of a “mere” $1 billion I am not seeing it and not even then really. – JB

Attention HFTs: New Rules Are Coming
Amy Bard and Daniel Nelson – Traders Magazine
Recent high-profile market disruptions — from the May 2010 Flash Crash to this summer’s three-hour disruption in NASDAQ trading — have demonstrated structural weakness which is an unfortunate by-product of the financial markets rapid automation, and the rise of alternative trading systems, dark pools and other off-exchange venues. While these disruptions are often popularly blamed on high-speed traders, U.S. regulators have recognized that the causes are far too complex to be attributed to any single group.
http://jlne.ws/1eCHGma

Algo trading systems in FINRA sights
Richard Henderson – The Trade USA
The Financial Industry Regulatory Authority (FINRA) will investigate market participants’ algorithmic trading systems to ensure adequate monitoring is taking place and help the industry avoid algo-related trading errors, the organisation has stated.
http://jlne.ws/1eCIpE6

Regulation the main priority for buy-side in 2014 – The TRADE Poll
John Bakie – The Trade
Getting to grips with regulation and compliance is top of the agenda for the buy-side in 2014, according to findings from theTRADEnews.com’s December poll.
With many new regulatory regimes set to be implemented this year, including aspects of the Dodd-Frank Act and the European market infrastructure regulation (EMIR), and other regulations expected to be finalised, buy-siders are facing a significant compliance burden.
TheTRADEnews.com’s poll found 49% of respondents believe dealing with regulatory and compliance issues will be biggest priority for buy-siders in 2014.
http://jlne.ws/1eCK1Of

Strategy

Volatility Trading Digest – Strategy Ideas & VIX Hedge Suggestion
The Options Insider
Over the next few weeks, there will be numerous articles published and talk about attempting to foresee economic and market conditions. Based upon the records of leading market pundits and economists we suggest spending more time managing positions and less time attempting to forecast. However, we do think it worthwhile to watch for continuing market sector rotation in the event interest rates continue advancing.
http://jlne.ws/1eCOKzl

Events

Live webinar: Trading VSTOXX – Market Making, modeling and risk management in volatility futures
Press Release (Eurex)
– When: January 15, 2014: 2-4p CST
Volatility investing with the VSTOXX — the European equivalent of the VIX—continues to make strides in the market with an increased following no longer restricted to leveraged investors.
To learn more about this opportunity, join a live webinar from Eurex Exchange and OptionsCity. We will explore Market Making, modeling and risk management in VSTOXX Futures using the intuitive tools in OptionsCity’s Metro and Freeway platforms.
Topics include:
 – Liquidity and leveraging index skews
 – Deriving fair value for VSTOXX Futures using a Freeway algorithm
 – Calendar spread trading
 – And more…
http://jlne.ws/1eCElnk

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