Observations and Insight

Building Bricks: T-Bricks Could Be New Cornerstone For ORC
JohnLothianNews.com

Jonas Hansbo and his team left ORC in 2006 to focus on his own brand of trading and financial technology with a startup called T-Bricks. But Hansbo and his colleagues were brought back to the mothership in January when when ORC purchased T-Bricks. Now, Hansbo said the two firms will bring their respective strengths together.
“ORC has been evolving since we left it, and very much focused on reinventing their electronic trading platform for connectivity and electronic execution,” Hansbo said. “So what we thought would be a very interesting fit for the two companies was to make a combination of our offer in trading together with ORC’s global reach.”
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Lead Stories

CBOE to Develop New Index Options Products Based on FTSE and Russell Indices
Matt Moran – CBOE Options Hub
Over the past dozen years, the aggregate total trading volume for options on the Russell 2000 (RUT) Index is more than 190 million contracts. In 2014 the average daily notional value of trading in Russell 2000 options was more than $10 billion.
Building on the success of the Russell 2000 options, CBOE Holdings, Inc. announced today that it has entered into a licensing agreement with London Stock Exchange Group (LSEG), to develop and list options based on more than two dozen FTSE and Russell indices. Under the agreement, cash-settled options on these indices will now be available to trade in the United States on the Chicago Board Options Exchange (CBOE). In addition, as part of the agreement, CBOE and LSEG will collaborate on new index options products and investor education globally.
http://jlne.ws/1zi4L6f
***DA: From S&P Dow Jones Indices to Russell Indexes, CBOE knows how to get the job done in terms of tie-ups with major index providers.

Bloomberg: VIX Poised For Record Drop In February
Bloomberg via The Options Insider
For U.S. stock investors, threats that looked poised to swallow the bull market a month ago are already fading from memory.
Prices for options that protect against declines in the Standard & Poor’s 500 Index are falling twice as quickly as they rose at the beginning of the year. The Chicago Board Options Exchange Volatility Index has slid 34 percent in February, on track for its biggest monthly drop on record after it jumped as much as 17 percent in January.
http://jlne.ws/1zi6qZn
***DA: Still off the 52-week low of 10.28, but it seems like yesterday (though it was really October) when it breached 30 to the upside.

Evaporating Liquidity and the Fight for Nano-Pennies
Adam Warner – Schaeffer’s Investment Research
Is the changing liquidity landscape affecting the way we trade options?
http://jlne.ws/1EuUV7K
***DA: In a word, yes.

Videocast: Futures see higher VIX
optionMONSTER
http://jlne.ws/1EuUzhg

Exchanges

CBOE Holdings Signs Licensing Agreement to List Options on FTSE and Russell Indices
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that it has entered into a licensing agreement with London Stock Exchange Group (LSEG), to develop and list options based on more than two dozen FTSE and Russell indices. Under the agreement, cash-settled options on these indices will now be available to trade in the United States on the Chicago Board Options Exchange (CBOE). In addition, as part of the agreement, CBOE and LSEG will collaborate on new index options products and investor education globally. The trading in FTSE and Russell index-based options on the CBOE will begin in the coming months.
http://jlne.ws/1Gxu8qr

Bitcoin futures market just changed the game—commentary
Brian Kelly – CNBC
When the New York Stock Exchange announced its investment in the U.S.-based bitcoin exchange and wallet service Coinbase, I thought it was a sign that bitcoin was done with its “tumultuous teen” years and ready for adulthood. The ascent into adulthood would be marked by high profile investors and an exponential growth in the ecosystem.
http://jlne.ws/1zi7rk9
***JB: Yup, options are a part of this too.

Regulation and Enforcement

EU and U.S. struggle to resolve derivatives clearing dispute
Douwe Miedema, Reuters
European Union and U.S. negotiators are struggling to move past some stumbling blocks in talks over mutually acceptable rules for derivatives clearing houses, two people familiar with the talks said. Negotiators hope to reach a deal by June 15, when new capital requirements kick in for European banks that would make it prohibitively expensive for them to do business with U.S. clearing houses.
http://jlne.ws/1ERQYId
***DA: One sticking point is a suggestion that U.S. margin rules are too lax. When you look at how many U.S. FCMs have headed for the exits, we have to wonder just how much more the market can bear.

Remarks of Timothy G. Massad before the Coalition for Derivatives End-Users
CFTC
Since June, when two other commissioners and I took office, we have all been doing a lot of listening. Through individual meetings. Through our Commission open meetings. And through our advisory committee meetings. Today in fact, we have the first meeting of our Energy and Environmental Market Advisory Committee since we took office.
Today I want to review some of the things we have done over the last eight months, and discuss some of the things we will be doing in the upcoming months.
http://jlne.ws/17B3TDr

Strategy

Combining CBOE and MSCI Gives Investors the World
Russell Rhoads – CBOE Options Hub
In a few weeks CBOE will begin listing options on two of the widely followed MSCI Indexes. This addition of cash settled index options on the MSCI EAFE and MSCI Emerging Market Indexes will result in investors being able to gain exposure to just about every investible market in the world by trading at CBOE. After such a bold statement, an explanation is definitely in order.
Before discussing the world I’ll address the United States. On a notional basis the S&P 500 (SPX) Index option market is the most actively traded option market in the United States. The fastest growing index option market in the US for 2014 was the Russell 2000 (RUT) Index option market.
http://jlne.ws/1zi5u7j

Block Trade Analysis – Russell 2000 Iron Condor
Russell Rhoads – CBOE Options Hub
Checking in on trading activity in my favorite index, the Russell 2000, I came across a fairly interesting trade using short dated options from around 11:00 Monday morning. I say around 11:00 because the trader legged into an Iron Condor. A couple of minutes before 11:00 200 of the RUT Mar 6th 1180 Puts were sold at 2.75 with 200 of the RUT Mar 6th 1160 Puts purchased for 1.47 which comes to a net credit of 1.28. At the time of this execution the Russell 2000 was at 1224.52 so it appears the trader has a neutral to bullish outlook for small cap stocks. Well, not so fast…
http://jlne.ws/1zi5VPf

Warning: The Great Risk Income Investors Don’t Realize
NASDAQ
But I’ve been very successful in this low-interest-rate environment. I’ve closed 85 straight winning trades in my Income Trader newsletter since its inception in February 2013. And I’m not talking about single-digit gains either. The average trade has provided an annualized return of 53%.
Before I get into how I was able to do this, I want to look at the risks income investors face today.
http://jlne.ws/1EuU1Iu

Options Education

Tools to Help Manage Russell 2000 Portfolios: (1) RUT Index Options; (2) BXR BuyWrite Index, and (3) RVX Vol Futures and Options
Matt Moran – CBOE Options Hub
In the rest of this Blog I will highlight three tools that can be helpful in exploring ways to manage small-cap exposure — (1) Options on the Russell 2000 Index (RUT) ; (2) CBOE Russell 2000 BuyWrite Index (BXR), and (3) Futures and options on the CBOE Russell 2000 Volatility Index (RVX).
http://jlne.ws/1zi4Zdr

Events

CBOE RMC, March 4-6 2015, Carlsbad California
Now in its 31st year in the U.S., the annual CBOE Risk Management Conference (RMC) is the premiere financial industry conference designed for institutional users of equity derivatives and volatility products. Hosted by the Chicago Board Options Exchange (CBOE), RMC is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure and enhance yields. RMC brings together top traders, strategists and researchers, enabling participants to learn the state-of-the-art in investment risk management from true experts in the field.
http://jlne.ws/1zarals
***DA: One more week!

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