Observations & Insight

OIC Conference Preview: BOX CEO Ed Boyle on how the options industry is working to address market challenges
JohnLothianNews.com

At this year’s Options Industry Conference in Miami Beach, participants will discuss such crucial industry issues as market quality and deteriorating volumes, the implementation of Dodd-Frank and Reg SCI, technology and risk management. The conference is hosted by BOX Options Exchange, whose new CEO, Edward Boyle, spoke with John Lothian News about some of these issues and what’s being done to address them.
Watch the video »

Lead Stories

CBOE outlines plans to overhaul trading system
Futures & Options World
CBOE Holdings, the Chicago based exchange operator, is set to overhaul its trading technology by introducing a new trading platform CBOE Vector planned next year.
Speaking on an earnings call Ed Tilly, chief executive of CBOE, told investors development was underway on a new low-latency trading platform, which is set to debut on CBOE Futures Exchange in the second half of 2016 with its other markets C2 and CBOE to follow.
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***DA: Roger, Roger. Do we have clearance, Clarence? What’s our vector, Victor?

CBOE Bets on Weekly VIX
Steven M. Sears – Barron’s
CBOE Holdings, which is trying to offset weakness in its critical volatility-trading complex and a decline in trading volumes, said Friday it will offer weekly expirations on Volatility Index futures and options.
While the exchange-holding company gave no start date, CBOE (ticker: CBOE) expects to commence VIX (VIX) futures sometime in July. Pending regulatory approvals, VIX options will follow, though again CBOE announced no start date. The news accompanied first-quarter earnings significantly lower than last year’s.
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***DA: Compressing the volatility cycle.

Cost of hedging against sterling volatility jumps before election
Reuters
The cost of protection against big swings in sterling’s exchange rate spiked to its highest since the May 2010 British elections on Monday, just three days before Britons vote in the closest-fought electoral race in recent history.
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***DA: Is a coalition government good or bad for the pound? Yeah; I don’t know either. But apparently it could be big.

Still In No Man’s Land – Weekly Market Outlook 5.4.15
Price Headley – CBOE Options Hub
Despite the strong bullish effort on Friday, stock’s booked a loss for the past week. On the other hand, the market finished the week on a bullish foot, which broadly suggests we’ll hit the ground running in an upward direction this week. (It doesn’t hurt the bullish case that the longer-term trend is still technically intact.) We’ll weigh the odds below, after looking at last week’s big economic news and previewing some of this week’s economic data.
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Aggressive HFT and Volatility
Irene Aldridge – Huffington Post
Aggressive HFT has long been associated with volatility. Several academic studies hypothesized that higher aggressive HFT participation leads to higher volatility levels, and for good reasons, as explained below. The empirical evidence, however, has been hard to come by, until now. This note explains the empirical relationships between implied volatility of options on stocks comprising the S&P 500 and participation of aggressive HFT, as measured by the AbleMarkets Aggressive HFT Index. As the note shows, two prominent conclusions can be made about the aggressive HFTs in relation to volatility in which the aggressive HFTs are present:
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***DA: If you read the above paragraph, you might think the story is a smoking gun on the evils of HFT. You would be wrong. Click and read for yourself.

Record Month Ends in Pain as Biotech, Small Caps, Apple Tumble
Lu Wang – Bloomberg
Investments that catapulted U.S. stocks to all-time highs in April turned sour as the month ended, all but erasing gains in the Standard & Poor’s 500 Index.
Health-care stocks, small caps and shares of Apple Inc. and LinkedIn Corp. tumbled as the month wound down, with companies in the biotechnology industry poised for the worst weekly retreat since August 2011. They echoed the fate of popular trades elsewhere, as the dollar and European bonds slid while energy prices rebounded.
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Russell Multi-Strategy Income Fund launched
Press Release – Russell Investments
To help investors balance the need for generating income today, while also aiming to drive portfolio growth to generate sustainable future income, global asset manager Russell Investments has launched the Russell Multi-Strategy Income Fund. The new fund, available via financial professionals, invests across a set of asset classes with both income and growth potential using a team of specialist money managers and strategies. Moreover, recognizing that market opportunities will likely change over the course of an investor’s time horizon, the fund has built-in flexibility to seek to adapt to risk and opportunities using dynamic portfolio management.
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Exchanges

CBOE Holdings to List VIX “Weeklys” Futures and Options
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced that it plans to list futures and options with weekly expirations on the CBOE Volatility Index (VIX Index), the leading market barometer of U.S. equity market volatility.
VIX Weeklys futures are expected to begin trading at CBOE Futures Exchange (CFE) in July, subject to regulatory review. VIX Weeklys options are expected to begin trading at Chicago Board Options Exchange (CBOE) shortly thereafter, also subject to regulatory approval.
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CBOE Holdings Reports April 2015 Trading Volume
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that total trading volume during April for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) and futures contracts on CBOE Futures Exchange (CFE) was 91.4 million contracts, a decrease of four percent versus March 2015 and a decrease of 15 percent from April 2014.
Total options and futures average daily volume (ADV) at CBOE Holdings during April was 4.4 million contracts, an increase of one percent from March 2015 and a decrease of 15 percent from April 2014.
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CBOE Futures Exchange Reports April 2015 Trading Volume
Press Release – CBOE
CBOE Futures Exchange, LLC (CFE) today reported that April 2015 monthly average daily volume (ADV) and monthly total volume, both exchange-wide at CFE and for futures on the CBOE Volatility Index (VIX Index), declined from last month and from year-ago levels.
VIX Futures
April average daily volume in VIX futures was 161,157 contracts, a decrease of 4 percent from March 2015 and decline of 10 percent from April 2014. Total volume in VIX futures for April was 3.4 million contracts, down 8 percent from the previous month and down 10 percent from a year ago.
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ISE Holdings Reports Business Activity for March 2015
Press Release – International Securities Exchange, LLC
ISE and ISE Gemini combined represent 16.7% of equity options market share, excluding dividend trades.
ISE and ISE Gemini reported a combined ADV of 2.4 million contracts.
Dividend trades made up 0.7% of industry volume in April 2015.
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CME Group Volume Averaged 11.5 Million Contracts per Day in April 2015
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that April 2015 volume was 252 million contracts, down 2 percent from April 2014. Of the total volume, 87 percent was traded electronically. April 2015 volume averaged 11.5 million contracts per day, down 6 percent from April 2014. Options volume in April averaged 2.3 million contracts per day, down 1 percent versus April 2014, with electronic options growing 6 percent over the same period. Of the total options volume, 52 percent was traded electronically in April.
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OCC Cleared Contract Volume Declined 8% in April
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in April was 331,552,965 contracts, an 8 percent decrease from the April 2014 monthly volume of 360,854,580 contracts. Average daily volume at OCC is down 9 percent in 2015 with 16,317,845 contracts. OCC’s stock loan program reported strong volume numbers in April with year-to-date activity up 12 percent.
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Options Exchange Marketshare – April 2015
Press Release (via email) – OCC

April 2015 Total Options Marketshare:
AMEX- 8.49%
BATS- 9.87%
BOX- 2.25%
CBOE- 24.75%
C2- 2.13%
GEM- 3.59%
ISE- 11.68%
MIAX- 6.68%
NOBO- 0.73%
NSDQ- 6.31%
NYSE Arca- 8.41%
OMX PHLX- 15.11%

April 2014 Total Options Marketshare:
AMEX- 10.38%
BATS- 4.22%
BOX- 2.68%
CBOE- 27.22%
C2- 1.84%
GEM- 2.59%
ISE- 12.86%
MIAX- 2.77%
NOBO- 0.82%
NSDQ- 9.72%
NYSE Arca- 11.94%
OMX PHLX- 12.96%

April 2015 Equity Options Marketshare:
AMEX- 9.25%
BATS- 10.76%
BOX- 2.46%
CBOE- 18.08%
C2- 2.28%
GEM- 3.92%
ISE- 12.69%
MIAX- 7.29%
NOBO- 0.80%
NSDQ- 6.88%
NYSE Arca- 9.14%
OMX PHLX- 16.45%

April 2014 Equity Options Marketshare:
AMEX- 11.26%
BATS- 4.63%
BOX- 2.94%
CBOE- 20.49%
C2- 2.01%
GEM- 2.84%
ISE- 14.07%
MIAX- 3.04%
NOBO- 0.90%
NSDQ- 10.65%
NYSE Arca- 12.95%
OMX PHLX- 14.21%

Regulation & Enforcement

Wall Street regulator says futures should be part of audit trail plan
Suzanne Barlyn and Sarah N. Lynch – Reuters
Futures market trading data should be part of a new audit trail that is being developed to ensure that regulators can police markets across asset classes, a top Wall Street regulator said Friday.
The move to eventually include futures would be “logical” Richard Ketchum, the Financial Industry Regulatory Authority’s (FINRA) chief executive, said on the sidelines of a congressional hearing.
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Strategy

The Option Queen Newsletter
blog.optnqueen.com
“Sell in May and go away!” Well maybe, our suggestion is to use trailing stops or hard stops on your positions. We suggest that approach because the truth is that we do not know when the correction or plunge will occur, we only know that it will occur. Remember bull markets can last longer that you might ever have believed.
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Bravery Or Foolishness: The Danger Of A Correction For The S&P 500
Seeking Alpha
Lately I’ve enjoyed tackling some of the macroeconomic and demographic factors that I believe will play a large part in future returns for the broad market. I use the S&P 500 (NYSEARCA:SPY) as my starting point for measuring the market. Perhaps I’m unusual as an analyst, because I believe that markets are efficient enough that most investors should use an ETF like SPY as the core of their portfolio. I have nothing against picking individual companies and I certainly hold them inside my own portfolio when I believe the potential reward justifies the risk. However, I still keep the majority of my wealth invested in index funds with very low expense ratios.
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