JLN Options: CBOE to exit stock exchange business; Bullish Options Activity on Facebook Surges After Deal; Vix spikes as short volatility trade gets tougher

Feb 21, 2014

Lead Stories

CBOE to exit stock exchange business
Lynne Marek – Crain’s Chicago Business
CBOE Holdings Inc., which operates the Chicago Board Options Exchange, is getting out of the stock business, though it never was a major player in that market.
CBOE, the biggest U.S. options exchange, said in a statement that “it is no longer in the company’s strategic interests to pursue the stock business at this time.”

Bullish Options Activity on Facebook Surges After Deal
Kaitlyn Kiernan – The Wall Street Journal
The options market is a big fan of Facebook Inc.FB -1.43%’s latest acquisition.
As the stock rises to a record, investors are pouring into bullish options on Facebook shares, with about 2.4 bullish options trading for every bearish one. The biggest bet Thursday is looking for a more than 20% gain over the next month.
“It’s total insanity,” said Henry Schwartz, president of options-data firm Trade Alert. “Option traders appear to like the deal for Whatsapp.”

Vix spikes as short volatility trade gets tougher
Yakob Peterseil – Risk Magazine
Trading in Vix futures hit an all-time high in January as volatility spiked around concerns about the impact of slowing growth and US Federal Reserve tapering on emerging markets, but some market participants are also blaming central bank intervention for making a reliable short volatility trade trickier to execute.

Known unknowns: preparing for Sef-traded FX options
Robert Gray – FX-Week
Almost 20 organisations registered themselves as a Sef with the CFTC before the deadline in October last year. But, in keeping with the confusion and complexity that has surrounded Sefs since they were first proposed, the move has not created the clarity that some were hoping for.

COMMENTARY: Volatility Is Back
Nicholas Colas – Traders Magazine
Thus far in 2014 there’s only one notable capital markets trend: volatility is back.  Maybe not in a ‘Normal’ way just yet – the CBOE VIX Index closed at 14.8 today, still well off its long run average of 20.  It is, however, meaningfully higher than the 12-13 rut which markets occupied from November 2013 to the beginning of the current year.

Citadel Securities Announces a Record 72M Share ADV Traded through Citadel Connect in January
Press Release (via Businesswire)
Citadel Securities, a leading equity and listed equity options market maker in the U.S., today, for the first time, disclosed volume data for their IOC Gateway, Citadel Connect. A record 72 million equity shares traded through Citadel Connect on average per day in January.

Tech providers target derivatives for growth in 2014
The Trade
Trading solutions provider Fidessa is banking on its growing derivatives business to improve earnings this year, after posting flat revenue for 2013.
Revenue generated from derivatives has more than doubled, representing almost 5% of total revenue for 2013, according to Fidessa’s preliminary results released this week. And the solutions provider is expecting further growth in derivatives revenue in 2014.

Business Wire to stop selling directly to high-frequency traders
Luciana Lopez – Reuters
Business Wire will no longer let high-frequency trading companies buy potentially market-moving press releases directly from the Berkshire Hathaway unit.

With Ban on Ads Removed, Hedge Funds Test Waters
Alexandra Stevenson – The New York Times
It looks like the kind of motivational poster on a college student’s dorm room wall. Snowboarders stand at the peak of a steep mountain, reveling in victory, with the tag line, “Performing in all conditions.”
Instead, it is an advertisement for the $4.3 billion hedge fund Balyasny Asset Management. The fund says it hopes that viewers associate the ad, which is in the latest issue of the publication Pension & Investments, with prudent money management.


CME Group Named “Best Futures Exchange” by Markets Media Magazine for the Second Year in a Row
Press Release (via Yahoo Finance)
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the company was named “Best Futures Exchange” by Markets Media’s 2014 Market’s Choice Awards, as voted by peers and customers. The award recognizes CME Group’s excellence in client service and education, technology design and execution, and diverse and innovative products.

Regulation and Enforcement

Trading Rebates Skew Markets, NYSE and Allies Tell SEC
Dave Michaels – Bloomberg
The New York Stock Exchange and a group of money managers are lobbying U.S. securities regulators to abolish the practice of paying rebates to large brokers to attract trades to stock exchanges and other trading platforms, according to three people familiar with the matter.

Mark Cuban to SEC: Go after high-speed trading, not insider trading
Sarah N. Lynch – Reuters
Dallas Mavericks owner and prominent investor Mark Cuban is never shy about criticizing the U.S. Securities and Exchange Commission and its failure to prevail in its high-profile insider-trading case against him last fall.
As it turns out, he is equally passionate about high-frequency trading, too.


OptionsCity Named Best Options Technology by Markets Media
Press Release (OptionsCity)
OptionsCity Software, Inc. today announced that it was named the “Best Options Technology” in the 2014 Markets Choice Awards, presented by Markets Media.
Held at Marquee New York, the awards event attracted a myriad of influential attendees from the trading and investing space. OptionsCity received the award in a crowded field of highly-respected software provider candidates.

Options Education

Socrates and Another Famous Greek
Dan Passarelli – Wall Street Sector Selector
We all know options are derivatives, and their prices are derived from the underlying stock, index, or ETF.
But with other factors at work such as implied volatility (NYSEARCA:VXX), time decay, etc. Have you ever wondered how can you know how much an option is going to move with respect to say the underlying?  Very simple – check out its delta.

Finding Option Opportunities
Russ Allen – The Options Insider
Options are exciting to trade for many reasons. They offer so many opportunities that the sheer volume of possibilities can be overwhelming. How can we go about finding the good ones?
To answer this, we need to think about what the sources of options profits are. What makes their prices move?

Options Trading: What Kind of Player Are You?
Steve Smith – Minyanville
The market is near all-time highs, but recent volatility has pushed plenty of investors into wondering whether it’s time to jump in or head to the sidelines.
Was the recent 6% decline and subsequent bounce back an opportunity or a warning?
An educated options trader can profit from either perspective.
However, you must identify your goals in terms of time and profit expectations, and apply acceptable risk-to-reward rules within those parameters.

Creative Ways to Protect Your Stock Portfolio
After posting gains in a portfolio, the last thing you want to do is give them back. Protecting your stock portfolio is an extremely important part of portfolio management. There are several ways to approach this; some of the most common include buying put options and buying inverse exchange traded fund (ETF). It is necessary to understand how each works and how well each achieves the goals of protecting portfolio gains.

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