JLN Options: CBOE Taps Rate Concerns With Futures on Bond Volatility; CBOE bond volatility futures make silent debut; Can No Bad News Rattle This Market?

Nov 13, 2014

Lead Stories

CBOE Taps Rate Concerns With Futures on Bond Volatility
Callie Bost – Bloomberg
One of the biggest concerns on Wall Street is that last month’s volatility in bond yields will recur as the Federal Reserve withdraws stimulus. Futures traders are getting a new way to protect themselves.
Beginning today, investors will be able to buy and sell futures on the Chicago Board Options Exchange’s 10-Year U.S. Treasury Note Volatility Index, known by its ticker VXTYN, according to a statement from CBOE Holdings Inc. The contracts are designed to hedge against or speculate on turbulence in prices of government bonds.
**The morning story.

CBOE bond volatility futures make silent debut
Richard Leong – Reuters
A CBOE futures contract tied to a gauge on the expected volatility of the U.S. bond market, comparable to the exchange’s futures for its VIX index for stocks, made nary a ripple in its debut on Thursday.
The Chicago Board Options Exchange launched its futures contract tied to the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index. The contracts are geared to traders who want to hedge against large swings in U.S. bond yields.
**The afternoon story. One day, does not a contract make.

Also see our interview with the CBOE’s John Angelos on the launch of the VXTYN futures: http://jlne.ws/1sJTTvv

Can No Bad News Rattle This Market?
Anthony Mirhaydari – InvestorPlace
Large-cap U.S. stocks finished with marginal losses on Wednesday on light volume, as the rally out of the October 15 low paused for a breather. Amid low volume and narrow breadth, the bulls weren’t about to post another late session rise — which we’ve seen in the last 14 sessions heading into today.
Headlines were light, with reports of Russian armor moving back into Ukraine largely ignored in favor of the ESA comet landing and President Obama’s net neutrality comments. News of another market rigging settlement with the big banks, this time surrounding foreign exchange trading, was also largely brushed off as par for the course these days (following similar settlements for bad behavior in mortgage securities, interest rates, and precious metals).

VIX: Nothing to See Here, Folks
Adam Warner – Schaeffer’s Investment Research
There’s one more byproduct of the Great Volatility Collapse of November 2014 that we haven’t touched on lately. That is realized volatility (RV).
Way back about four weeks ago, RV boomed. Remember those days? ISIS was going to cross our borders infected with Ebola as part of a grand plan to end quantitative easing — or something like that. Anyway, we were extremely worried about stocks.
**All the excitement of an RV going to Iowa.

VIX Finds Support At Lower Channel Line
Alan Bradley – Investing.com
In the market Wednesday the S&P 500 took its first small dip giving the VIX a pop up from its lower channel line that it reversed up from on Monday. Monday’s VIX reversal led to the S&P dropping out of its three-week uphill channel Tuesday morning. Since then the S&P has been sideways as they are very determined to keep it from dropping which almost all traders are expecting it to happen very soon because the VIX has a big EMA pair set up ready to lift which is shown in the lower left corner chart above. This same EMA lift setup is what triggered the sell off to begin in late September.


Exchanges issue summary of data processor meeting for first time
Herbert Lash – Reuters
The U.S. stock exchanges have posted online details about the management of data processors that have sparked embarrassing trading glitches and accusations of shoddy disclosure by releasing minutes from an oversight meeting for the first time.
Two committees made up of representatives from 14 exchanges and brokerage watchdog the Financial Industry Regulatory Authority (FINRA) recently published a two-page summary of a general session meeting of the committees on Oct. 22.

Regulation and Enforcement

CFTC head defends agency from idea of merging
Eric Garcia – MarketWatch
The recent news of banks trying to manipulate foreign-exchange markets has at least one regulator defending his role.
After news of the Commodity Futures Trading Commission ordering five banks to pay more than $1.4 billion over foreign-exchange trading abuses, Chairman Timothy Massad defended the agency from proposals of merging with the Securities Exchange Commission because the two agencies had different purposes.

CFTC to Look Into Disclosure of Identities of Swap Counterparties
Katy Burne – WSJ
A top U.S. regulator said his agency would scrutinize a practice in the multitrillion-dollar swaps market that some investors say has been discouraging trading.
Timothy Massad , chairman of the Commodity Futures Trading Commission, on Wednesday told an industry conference the agency would look into the practice known as “name give-up,” in which traders’ identities are disclosed during post-trade processing, when they were intended to remain anonymous.


Trading system fails require greater scrutiny – experts
Automated Trader
At a recent conference, FINRA’s CRO Carlo di Florio asked whether algos are governable. The speech attracted a lot of attention, not least because of the technical glitches consistently making headlines around the world.
Referring to the Knight Capital meltdown in 2012, di Florio said that these malfunctions “raise concern about the ability of firms and market to develop, implement and effectively supervise these systems”.

Options Education

The Urban Legend and the Options Delta
Larry Shover – Fox Business
Within the knitting of the options industry are numbers used to estimate the risks associated with the movement of the underlying, implied volatility, and the passage of time.  They are numbers produced by fuzzy mathematical formulas and together known as “greeks” because most use Greek letters as names.  Delta is the first and foremost greek and it simply measures the theoretical change in an options price with respect to a change in the underlying price.

Pick The Right Options To Trade In Six Steps (MCD,BAC)
Elvis Picardo – Investopedia
Two major benefits of options are (a) the extensive range of options available, and (b) their inherent versatility that allows any conceivable trading strategy to be implemented. Options are currently offered on a vast range of stocks, currencies, commodities, exchange-traded funds and other financial instruments; on each single asset, there are generally dozens of strike prices and expiration dates available. Options can also be used to implement a dazzling array of trading strategies, ranging from plain-vanilla call / put buying or writing, to bullish or bearish spreads, calendar spreads and ratio spreads, straddles and strangles, and so on. But these same advantages also pose a challenge to the option neophyte, since the plethora of choices available makes it difficult to identify a suitable option to trade. Read on to learn how to pick the right option/s to trade in six easy steps.


New Class Offering at CBOE
Russell Rhoads – CBOE Options Hub
Next month I will team up with Mark Sebastian from Option Pit one more time this year for a final seminar at CBOE. This time our class is going to cover different consistent and structured trading approaches to the option market. The underlying markets discussed include VIX, SPX, and individual stock with time frames varying from a few days to a few weeks. You can either join us in Chicago or if Chicago in December is not your thing join us online.

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