Observations and Insights
CME NASDAQ Options Volume Surges on Pullback
Doug Ashburn, John Lothian News
While last Friday’s down move in the U.S. stock market was broad-based, the NASDAQ 100 index fared worst of all, falling 2.7 percent on the disappointing March employment report. According to John Nyhoff, executive director of equity index products at CME Group, traders had been scaling back on tech and biotech shares in recent weeks, and the trend accelerated Friday, leading to the largest single day drop in the NASDAQ since November 2011. CME Group’s NASDAQ 100 options volume surged to a record 38,057 contracts, shattering the previous record of 29,014 set on February 5 of this year.
In other words, the equity options volume story from last year had a lot to do with writing calls for income. But those numbers have been eclipsed, at least at CME, by put trading during market declines.
Capstone’s Britton Foresees a $10 Billion Volatility Fund
Katherine Burton – Bloomberg
Capstone Investment Advisors LLC’s Paul Britton, whose volatility hedge-fund firm oversees $2.5 billion, predicts that within five years his small sector of the industry will produce a pool whose size rivals some of the biggest managers today.
VIX Jumps 19% as Losses Worsen Below Surface of S&P 500
Joseph Ciolli and Callie Bost – Bloomberg
While two weeks of selling look like a blip on a chart of the Standard & Poor’s 500 Index (SPX), for the average investor it’s been a lot more painful.
Amazon.com Inc. (AMZN:US), Whole Foods Market Inc. and Transocean Ltd. are among 43 companies that have lost more than 20 percent from their 52-week high, data compiled by Bloomberg show.
Hedge Funds Get Gold Timing Wrong on Rebound: Commodities
Megan Durisin – Bloomberg
Hedge funds and other speculators misjudged gold prices for a second time in three weeks.
Just after the investors sold bullion holdings for a second consecutive week, a disappointing U.S. jobs report sparked the biggest rally in prices since mid-March. Their funds fared better in the five preceding weeks, correctly adjusting wagers 80 percent of the time.
Does the VIX fully reflect fear in the market?
Bob Pisani – CNBC
There’s been a strange phenomenon going on I want to clear up: I’ve been hearing from my hedge-fund friends—particularly tech-oriented hedge funds—that there are considerable losses in the last two weeks, and yet the CBOE Volatility Index (VIX), which measures the relative levels of put and call buying in the S&P 500 near-term options, has barely budged, remaining at around 15, well below its long-term average.
Many have said that this is a sign there is no fear in the market.
Videocast: VIX calls losing value
‘Flash Boys’ Fuels More Calls for a Tax on Trading
Nelson D. Schwartz – The New York Times
It’s not every day that you find a fan club for new taxes, especially among economists and legal experts.
But a burst of outrage in recent days generated by Michael Lewis’s new book about the adverse consequences of high-frequency trading on Wall Street has revived support in some quarters for a tax on financial transactions, with backers arguing that a tiny surcharge on trades would have many benefits.
***JB: “Tax” is a four letter word around here.
FIA introduces SEF Tracker
FIA is launching SEF Tracker, a periodic report on trading activity taking place on swap execution facilities. The report is intended to provide the public with a better understanding of the new venues for the trading of over-the-counter derivatives.
FIA will publish the SEF Tracker report on a monthly basis initially but plans to publish it on a more frequent basis at a later stage.
ISE Lists Additional 650 Products
Press Release (ISE)
ISE announced today that it has successfully completed the rollout of 650 additional equity options products on the exchange. With the addition of these symbols, ISE now lists equity options covering more than 99% of average daily volume for multiply-listed products.
CME Says Some Trading Halted Because of Technical ‘Issues’
Matthew Leising, Jeff Wilson and Elizabeth Campbell – BloombergBusinessweek
CME Group Inc. (CME:US), the world’s largest futures market, said “technical issues” prompted it to halt trading of about two dozen contracts on its Globex futures and options markets, according to a notice on its website.
NASDAQ OMX Gets Approval For European Clearing House
NASDAQ OMX Group has now become the first exchange operator to receive approval for its Stockholm-based clearing house to operate under new European Union trading rules that regulate derivatives trading. The Swedish Financial Services Authority recently approved the application of NASDAQ OMX Clearing as a central counterparty (or clearing house) under the European Market Infrastructure Regulation.
Nadex First Quarter 2014 Trading Volume Rises 49.8%
Press Release (via Virtual-Strategy Magazine)
The North American Derivatives Exchange (Nadex) today announced that its 2014 first quarter (Q1 2014) exchange volume of binary options and spread contracts traded increased 49.8% quarter-over-quarter from the first quarter in 2013. The most heavily traded contracts on the exchange in Q1 2014 were the US500 and USD/JPY.
Regulation and Enforcement
SEC Goldman Lawyer Says Agency Too Timid on Wall Street Misdeeds
Robert Schmidt – Bloomberg
A trial attorney from the Securities and Exchange Commission said his bosses were too “tentative and fearful” to bring many Wall Street leaders to heel after the 2008 credit crisis, echoing the regulator’s outside critics.
***JB: “Many”? Did they bring *any* to heel?
Nearly Half of Dodd-Frank Rules Still Unwritten
Vipal Monga – The Wall Street Journal
The Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank Act, remains a work in progress almost four years after it was signed into law.
As of April 1, only 52% of the 398 rules mandated by the law have been completed, according to law firm Davis Polk & Wardwell LLP.
In Times Like These, Consider Covered Call ETFs
Tom Lydon – ETF Trends
When stocks move up in near straight-line fashion, covered call exchange traded funds are nice income generators, but these ETFs will also lag the broader market’s returns.
It is during volatile market stretches that the utility of covered call ETFs shines through.
Give Yourself More Options With Weekly and Quarterly Options
Elvis Picardo – The Options Insider
Weekly and quarterly options are similar to standard option contracts in most respects, except for one major difference: their expiration date. Weekly options were initially launched by the Chicago Board Options Exchange (CBOE) in October 2005 as one-week options, but now refer to options that expire on any Friday other than the third Friday of the month (which is the case with standard options).