JLN Options: The Changing Face of “Mom and Pop” Traders; Options Traders Predict Explosive Move for Twitter; Inverse VIX Fund Gets Record Cash on Calm Market Bet: Options

Feb 5, 2014

Observations and Insights

The Changing Face of “Mom and Pop” Traders
by Catherine Clay, CEO of Livevol

When Andy Nybo talks, I pay close attention. I’m sure I’m not alone because Andy, head of derivatives research at the TABB Group, delivers some great research. Some of his recent research concerns the rise of the individual retail trader, a subject covered in a recent Wall Street Journal article, “Mom and Pop Flock to Options Market.”

Obviously, participation is the lifeblood of the options market. Data showing increased retail option trading is music to the ears.

Andy’s research also dovetails into what we are seeing at Livevol. “Mom and Pop” traders are opening accounts at a brisk clip. But what is truly eye-opening is the growing sophistication of these traders.

No longer content with simple covered call or similar strategies, many of these clients request substantial amounts of historical options data for their research or custom market scanning. They also ask for custom back testing to get a better idea of the effectiveness of some trading strategies.

Read More > >  http://jlne.ws/1cVPr8L

Lead Stories

Options Traders Predict Explosive Move for Twitter
The Wall Street Journal
The options market is pricing in an explosive move for Twitter Inc.TWTR -0.18% following its first earnings report as a public company Wednesday night.
http://jlne.ws/1fIajAZ
** With an hour left in the trading day, I just did a recheck of the expected move implied by the at-the-money straddle. Sure enough, the option market is signalling just under a 15% move. – CC

Inverse VIX Fund Gets Record Cash on Calm Market Bet: Options
Bloomberg
An exchange-traded fund that appreciates as calm is restored to financial markets has never been more popular.  About $196 million was added last week to the VelocityShares Daily Inverse VIX (XIV:US) Short-Term ETN, which rises in value as swings decline, the most since its debut in November 2010, according to data compiled by Bloomberg.
http://jlne.ws/1fHVQ87

EC bank reforms would leave lenders unable to hedge
Risk.net
European proposal limits risk management tools to clearable swaps only, preventing options-based hedges
Banks split up by a new European proposal would not be able to hedge common exposures such as mortgage prepayment risk because of limits placed on the derivatives they can use, dealers are warning.
http://jlne.ws/1exbC5j

The Buffett derivative mystery gets more exotic
FT Alphaville
In the comments on our last piece on Berkshire Hathaway’s very large derivative contracts we and Professor Pablo Triana learned that Warren Buffett treats the put options he sold between 2004 and 2008 as hard-to-value Level 3 liabilities that must be marked-to-model (or myth). See page 84 in the 2009 annual report.
http://jlne.ws/1fHYjQ0
** Plain vanilla or exotic, it’s all just making money the Warren Buffett way – CC

Weak US economic data could cause more VIX spikes
Opalesque New York
Volatility could be returning to the market following a low volatility 2013. The Chicago Board Options Exchange (CBOE) Volatility Index jumped 34% last month for the biggest January on record. The VIX climbed 16% on Monday to 21.44, a one-year high after economic data showed weakened US manufacturing numbers. The market reaction was notable as there were periods of slightly weaker manufacturing and other economic indicators in 2013 that failed to spark similar activity. With retail sales and non farm payroll numbers still on the horizon, this week could be very active on the VIX.
http://jlne.ws/1fHVDSi

Volatility Markets Implying A Bottom In Gold
Seeking Alpha
Slowdown in manufacturing in the world’s largest economy sent the benchmark indexes falling through key levels on Monday. S&P 500 (SPY) fell 2.3 percent while the Dow Jones Industrial Average closed down 2.1 percent. The S&P 500 has fallen 5.8 percent since January 15. Under-performance of indexes behind the backdrop of strong earnings reports reflects the concern that the turmoil in emerging markets is threatening a global economic recovery.
http://jlne.ws/1fI3u2f
** Picking market bottoms can be a stinky endeavor, but it sure is nice to get in early on a new trend – CC

Record Volume Month for S&P 500 Weeklys, VIX Options and VIX Futures
CBOE Options Hub
In the month of January 2014, monthly volume records were established by S&P 500 Weekly options (SPXW), and by both options and futures on the CBOE Volatility Index® (VIX®).  SPXW options had average daily volume of 278,537 in January.
http://jlne.ws/1fI5yYc

What the VIX and Wayne Gretzky Have in Common
Adam Warner, Schaefer’s Investment Research
Everywhere you look, interest in the CBOE Volatility Index (INDEXCBOE:VIX) is booming.
VIX futures?  Trading volume in CBOE Volatility index VIX futures hit an all-time high in January, suggesting investors were busy buying protection against a market decline.
http://jlne.ws/1fIa0pH

Exchanges

CBOE Holdings Declares First Quarter 2014 Dividend
Press Release
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that its Board of Directors has declared a quarterly cash dividend of $0.18 per share of common stock payable on March 21, 2014, to stockholders of record at the close of business on February 28, 2014.
http://jlne.ws/1fHQxWb

CBOE Holdings Larger Than S&P 500 Component FLIR Systems
BNK Invest
In the latest look at stocks ordered by largest market capitalization, Russell 3000 component CBOE Holdings Incorporated (Symbol: CBOE) was identified as having a larger market cap than the smaller end of the S&P 500, for example FLIR Systems, Inc. (Symbol: FLIR), according to The Online Investor.
http://jlne.ws/1fI5dVf

BATS GLOBAL MARKETS ANNOUNCES COMBINED EXECUTIVE TEAM
Press Release
Chris Isaacson Named EVP, Global CIO; Bryan Harkins Named EVP
BATS Global Markets today announced its combined executive team, effective with the Jan. 31st close of the company’s merger with Direct Edge Holdings.
http://jlne.ws/1fHTFl5

ICE’s January Global Derivatives ADV Fell 8% in January
The Options Insider
On Wednesday, the IntercontinentalExchange Group (NYSE: ICE) reported its exchange traded volumes for January 2014.
ICE’s January average daily volume (ADV) for global derivatives was 10.4 million contracts, a decrease of 8% compared to January 2013.
http://jlne.ws/1fHX5UN

Prop Traders Slam CME Over New Data Fees
FOW Intelligence
http://jlne.ws/1fI06EF

Technology

TradeMonster Launches Live Scanner on Mobile
Wall Street & Technology
TradeMonster announced today its custom options market scanner tool is now available on mobile platforms.
TradeMonster has earned a name for itself as the only proprietary trading platform built on HTML5 and has won numerous awards for their mobile applications and user interface. The live scanner, called LiveAction, was previously available only on the desktop interface.
http://jlne.ws/1fHQklU

Strategy

Covered Call ETFs: Less Bad While Damping Volatility
Seeking Alpha
Covered call exchange traded funds have underperformed in last year’s bull market rally, but the income-generating strategy has provided some downside protection in the current sell-off.
The Powershares S&P 500 BuyWrite Portfolio (PBP), which is the largest ETF to follow a covered call strategy, has dipped 2.3% year-to-date, whereas the S&P 500 benchmark has declined 3.5%.
http://jlne.ws/1fI3Vtr

Events

CBOE Holdings To Present At Credit Suisse Financial Services Forum On Tuesday, February 11
Press Release
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that Edward Provost, President and Chief Operating Officer, and Alan Dean, Executive Vice President and Chief Financial Officer, will present at the Credit Suisse Financial Services Forum in Boca Raton, Florida on Tuesday, February 11, 2014, at 1:00 p.m. Eastern Time.
http://jlne.ws/1fIb64W

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