JLN Options: CBOE Futures Exchange Announces Launch Date For CBOE Short-Term VIX Futures With Weekly Expirations; Emerging FX sell-off may go on, unlikely to hit majors hard; Investors Seek Shelter From Emerging Markets Tumult

Jan 30, 2014

Observations and Insights

Growing Up: CME equity options showing strong growth
Jim Kharouf – John Lothian News

CME Group posted a record daily volume day in its equity index options complex last week, following up on some nice growth on equity options contracts in Q4 2013.

The E-mini S&P 500 options complex, which includes its weekly and monthly contracts, hit 1.06 million contracts on January 24, a 19 percent gain over its prior record last June of 809,935 contracts. Through last week, equity index options were up 69 percent from a year earlier.

This is good news for CME’s equity options complex, which posted total volume in 2013 of 91.5 million contracts, up 54.9 percent from 59.1 million contracts a year earlier, according to CME’s December data report. January has brought some volatility to the market and of course, great use of CME’s equity options.

Julie Winkler, managing director of research and development, CME Group said in a video commentary that new equity options are also showing strong growth in Q4.

There are other growing contracts within its equity index complex including CME’s weekly and end-of-month options. It’s E-mini S&P 500 end-of-month options traded 7.5 million contracts in 2013, up 49 percent from 5 million in 2012. It’s E-mini S&P 500 end-of-week one options totaled 5.9 million contracts in 2013, up 103 percent from 2.9 million, while end-of-week two options totaled 5.8 million contracts, up 64 percent from 3.5 million, and end-of-week four options hit 5.8 million contracts, up 95 percent from 2.9 million.

For more data see CME’s Volume Report for December 2013.

Lead Stories

CBOE Futures Exchange Announces Launch Date For CBOE Short-Term VIX Futures With Weekly Expirations
Press Release (CBOE)
CBOE Futures Exchange, LLC (CFE) announced today that  it plans to launch trading of futures with weekly expirations on the new CBOE Short-Term Volatility IndexSM (ticker symbol: VXSTSM) on Thursday, February 13, pending regulatory review.
Chicago Board Options Exchange (CBOE) developed the CBOE Short-Term Volatility Index (“VXST Index” or “Short-Term VIX Index”) in response to proven demand for WeeklysSM options generally, and volatility contracts that measure a shorter time period in particular.

Emerging FX sell-off may go on, unlikely to hit majors hard
Anirban Nag – Reuters
A sell-off in emerging-market currencies has further to run but probably will not lead to sharp moves higher in the most liquid major currencies, trends in the currency options market show.

Investors Seek Shelter From Emerging Markets Tumult
Kaitlyn Kiernan and Matt Jarzemsky – The Wall Street Journal
The tumult in emerging markets has stock investors reaching for insurance, though not yet heading to exits.
Worries about emerging markets rattled global investors Wednesday, causing fresh declines in the currencies of Turkey and South Africa. Those jitters have in turn sent U.S. stocks lower.

Cutting Edge introduction: living la vida local
Laurie Carver – Risk Magazine
At the start of 1994, Risk published Pricing with a smile by Bloomberg’s Bruno Dupire; it would go on to revolutionise option pricing. The problem at the time was that the Black-Scholes model assumed a constant volatility, but looking at option prices, volatility ought to vary with strike and maturity.

This Time the Fed Isn’t Saving You
Andrew Giovinazzi – The Options Insider
The Fed is continuing the modest tapering of bond purchases and thankfully ignoring the machinations in Turkey and Argentina. A stronger statement of course would be that they taper 20 billion instead of 10 billion.  There were some hopes that maybe with stocks lower that they would ride to the rescue.  That did not happen.

Risk & Energy Risk Commodity Rankings 2014: Energy
Gillian Carr – Risk Magazine
The past 12 months were hard for energy dealers, with low volatility, poor liquidity and reduced levels of client activity, prompting some banks to retreat from the market, as reflected in this year’s rankings results.

Mystery investor places massive bets on eBay
Alex Rosenberg – CNBC
Ebay stock options have become increasingly active in the past three months, as a series of very large bullish bets indicate substantial hedge fund interest in the stock.

Videocast: VIX traders hold firm

Market fragmentation is becoming a reality
The global nature of the derivatives market has long enabled users to manage their risk efficiently. This is something ISDA has championed throughout its history, and it’s been our single biggest concern over the past few years. Thankfully, the Group of 20 (G-20) nations shared this concern when setting their roadmap for derivatives reform in September 2009.

Sudden HSBC, Diageo Swings Spur Speculation of Trading Error
Inyoung Hwang, Howard Mustoe and Sarah Jones – Bloomberg
Shares in two of Europe’s biggest companies veered more than 6 percent from their market price earlier today, swings that in one case affected levels in the benchmark gauge for European equities before it was reversed.

UniCredit’s FX derivatives chief exits
Robert Mackenzie Smith – FX-Week
Peter Jerrom, managing director and global head of foreign exchange derivatives at UniCredit, has left the bank…
Jerrom had been at UniCredit for more than five years, having joined from Lehman Brothers in November 2008. He was head of exotics options at the US bank for nearly 18 months, and before that he worked at Barclays and Citi for a total of more than nine years in FX options.


It’s economics 101, says DirectEdge CEO on ‘maker-taker’ trading debate
Sital S. Patel – MarketWatch
The so-called maker-taker fee structure that U.S. exchanges have adopted is working just fine, says the Direct Edge CEO, respectfully disagreeing with other exchange CEOs.

CME Group sells Kansas City Board of Trade building
CME Group Inc has sold the building that housed the Kansas City Board of Trade to a Kansas-based real estate company for an undisclosed sum, representatives of the exchange operator said on Wednesday.

Regulation and Enforcement

Europe’s bid to reform mega-banks hits resistance in France
John O’Donnell – Reuters
Europe has unveiled a blueprint to isolate high-risk trading at big banks in a bid to challenge their dominance, provoking a hostile response in France amid fears it could benefit U.S. rivals not covered by the rules.


Finding protection in choppy markets
James Ramelli – Futures Magazine
Yesterday saw broader markets sell off as the Fed elected to continue the taper of QE with another $10 billion reduction in its monthly bond buying program. Although this was a widely expected move, many traders believed that the Fed might choose to hold tapering amid the unrest in emerging markets. E-mini S&P futures closed off the lows but firmly in negative territory.

Options Education

Rollin’, Rollin’, Rollin’
Russ Allen – The Options Insider
Last time I began discussing “rolling” an option position. “Rolling” means closing out part or all of an existing option position, and simultaneously replacing the closed-out portion with a similar one. The replacement position is different from the original in strike price(s), expiration date(s), or both.



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