JLN Options: China Equity Bulls Find New Reasons to Get More Bullish; Apple reaches $700 billion market cap; Negative Message From Implied Correlation

Nov 25, 2014

Observations and Insight

It’s Time
Jim Kharouf, Editor-in-Chief, John Lothian News

It’s time for the derivatives industry to innovate again. The last several years have been focused on redefining, resizing and revising the industry’s structure and rules.

Now with much of that set, it’s time for some real product innovation. There are many areas in which innovation can be extended and explored but for the purposes of this column, it’s in the contract space. An argument could be made that the last great product innovation in the derivatives industry was the CBOE Volatility Index futures, an index that was launched 10 years ago.

There have been a few other hits along the way but I’m talking about something new, interesting and potentially world changing. If the derivatives industry is truly about enabling companies, institutions and individuals to offset risk, then its time to address some truly global issues such as healthcare or more directly, cancer.

Andrew Lo, the director of the Massachusetts Institute of Technology Sloan School of Management’s Laboratory for Financial Engineering, believes he has part of the answer to curing cancer – better financial engineering using derivatives.

There’s more! Read the whole article on the JLN Blog at jlne.ws/1trkhdc.

Lead Stories

China Equity Bulls Find New Reasons to Get More Bullish: Options
Jonathan Burgos – Bloomberg
Options traders keep finding new reasons to get bullish on Chinese stocks. First an acceleration in government spending sent the biggest Chinese exchange-traded fund in the U.S. to a three-year high in September. After that rally faded, bulls turned their attention to the Shanghai-Hong Kong exchange connect. When inflows as the link debuted last week proved disappointing, optimists were redeemed by China’s surprise interest-rate cut.
***DA: Eye of the beholder. All I see is another government trying to prop up a weakening global economy.

Apple reaches $700 billion market cap
Andrew Wilkinson – Futures Magazine
It only took a few minutes to rack-up 100,000 option contracts in early trading as Apple’s market cap surged to a record.
The shares touched $119.75 valuing the company in excess of $700 billion. After 15-minutes of trading, option dealers had traded more than 200,000 contracts with the most commonly traded strike of 120.0 accounting for a little over one-quarter of total volume. Around 50,000 call options at the 120.0 strike have dominated trading compared to only 8,000 puts. Bearish plays attracted far less attention across the board as bullish sentiment was maintained. Option implied volatility is up by 4% to 22.6% on Apple options.

Negative Message From Implied Correlation
Howard Simons – TheStreet.com
One of the worst aspects of sign-on screens, news roundups, and the like is that everyone thinks they need an aphorism at the top of the page, some words to make you harrumph and then get on with your day with at least one pearl of wisdom.
Here is mine: when there’s not a cloud in the sky, be careful where you step.

Derivatives Exchange Nadex Awaiting for CFTC Approval to Launch Bitcoin Binary Options
Diana Ngo – Cointelegraph
The North American Derivatives Exchange (Nadex) announces its plans on launching a Bitcoin binary options offering in early December, subject to filing with the CFTC.
Chicago-based, regulated online binary-options exchange Nadex is launching Bitcoin binary options contracts next month, according the company’s November 24 announcement. The company is currently going under filing review from the US Commodity Futures Trading Commission (CFTC).
***DA: Will the answer be yes or no? (That’s a binary option joke; get it?)

Will Rising Implied Volatility for Oil Spill Over to Stocks?
While SPY volatility stays flat, expectations for a big oil move are ramping up
Adam Warner, Schaeffer’s Investment Research
I’m listening to the TeeVee when I hear a feature on oil volatility and anticipation thereof. My first thought is that, yeah, it was volatile for a few months. But that has kind of abated, albeit at lower levels. And the pundit-sphere tends to overstate volatility. Like we noted last week, it’s the rare person that comes out and says they expect less volatility going forward — in anything.
Silly me, they actually have a good point in oil.

Videocast: Caution in the VIX pits? (video)
Chris McKhann – optionmonster.com

What Options Traders Are Watching This Week
Last week ended on a bitter sweet note for the bulls as markets rallied to extreme new highs before the US opened on a surprise rate cut from China and more bullish talk from Draghi.
The pop, however, did not last long, as markets spent most of the day sliding (and even going red for the NASDAQ and small-caps).
A late day run, however, salvaged some of the greens to close up a little especially for the S&P 500 (INDEXSP:.INX) and Dow Jones Industrial Average (INDEXDJX:.DJI). The small caps however were not very convinced of the run and stayed muted. On the whole, the S&P and the Nasdaq put in a fifth consecutive green week.


Montréal Exchange Sets New Volume and Open Interest Records
Press Release via Stockhouse
TMX Group today announced that Montréal Exchange (MX) set an overall daily volume record of 846,803 contracts traded on November 24, 2014, surpassing the previous record of 799,225 contracts established on October 15, 2014.


LBR’s Raschke Says Trading Options Provides More Bang for the Buck
Futures trader Linda Raschke doesn’t need fancy algorithms and low-latency trading to take on options.
Phil Albinus – Traders Magazine Online News
Linda Bradford Raschke doesn’t consider herself a buyside trader. Although she runs her own fund after trading for several hedge funds back in 2002, the futures trader thinks of a buyside trader as someone dealing in equities. As founder and CEO of LBR Group, her fund is roughly 95 percent invested in futures with the remainder in options.
She just loves the strategy and the trading of futures better than equities.

Extract Profits From Those Days Off
Robert Lang – TheStreet.com
Not only will we be filling our bellies this week with food as we give thanks, but can also to take advantage of the Thanksgiving holiday in a unique way. As a frequent seller of option premium, I love to jump on board this time of year. Why? The market is closed on Thursday, and we’ll have a half-day Friday — and, with all that burned time, there is no better way of putting the odds in your favor for a win.

The 5 Worst Investments of 2014
Dan Caplinger – InvestorCenter
For more than five years now, the bull market in stocks has sent the Dow Jones Industrials (^DJI) and other major market benchmarks soaring. Even though 2014 has failed to match the strength of 2013, the Dow has still posted an impressive gain of nearly 7 percent, not including the dividends that its components have paid along the way.
But just because stocks have kept to their winning ways in 2014 doesn’t mean that every investor was so fortunate. In fact, some types of investments have performed abominably this year, costing investors huge losses. Let’s take a look at five of the worst investments of 2014 to see if you can draw some conclusions to help guide better investing decisions in 2015 and beyond.

Interesting VOO Put And Call Options For July 2015
Investors in Vanguard S&P 500 ETF (AMEX: VOO) saw new options become available this week, for the July 2015 expiration. One of the key inputs that goes into the price an option buyer is willing to pay, is the time value, so with 234 days until expiration the newly available contracts represent a possible opportunity for sellers of puts or calls to achieve a higher premium than would be available for the contracts with a closer expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the VOO options chain for the new July 2015 contracts and identified one put and one call contract of particular interest.

Options Education

Don’t Let a Trade Define You
Bob Lang, CBOE Options Hub
As traders and investors we often judge ourselves by the wins/losses in our buying/selling activities.  Yet, the results – while they do matter – are only a small part of the overall success you will achieve.  Many are destined to succeed based on their account growth, yet others (like myself) consider success as it relates to longevity.  Regardless, one should not let their net worth equate to their self worth.  What do I mean here?  Don’t let your bottom line, or even your last trade define who you are as a person.


Options Alliance Annual Conference Dec 8
Join us on December 8 for a deep dive into the exploding world of financial startups. Meet and mingle with your fellow entrepreneurs as you learn how to market, grow and fund a wide range of financial startups. The program begins at 1 pm at the Arditti Center for Risk Management at DePaul University’s Chicago Loop campus. The three panels cover the marketing, growth in AUM and funding of startup firms. A networking cocktail reception follows.
***Panelist firms include OIC, CME Group, Tradelegs, RCM Asset Management and more.

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