JLN Options: Commodities concerns voiced in Chicago; Vol spike revitalises exchanges; Dow, S&P 500 Eke Out Records

Nov 7, 2014

Observation and Insight

Hugh Vyvyan, Saracens Rugby Team – Transitions: Lessons on a career change

“You have to work incredibly hard to survive. That’s a fact of being a rugby player, and that’s a fact of life.”

Hugh Vyvyan, former player of the Saracens Rugby Team, discusses the importance of working as a team and what individuals need to do to better both themselves while contributing to their group, whether it be a sports team or financial firm. Vyvyan uses his own personal experiences with the Saracens team to illustrate how successful organizations focus more on its people rather than being driven by achieving results. Vyvyan noted how the Saracens organization did a complete overhaul on its philosophies by taking better care of its players and getting them to buy into a system where everyone contributes, whether or not their contributions were noticed during every game. However, all this begins with the individual. Hard work, making oneself well-rounded and becoming focused on the team first is what drives organizations to be great for years to come.

Watch the video »

Lead Stories

Commodities concerns voiced in Chicago
Gregory Meyer – Financial Times
This week Chicago hosted FIA Expo, a giant gathering of the futures industry. A kind of a geek fest for traders, it offered panels on topics like “Electronic Market Design” and vendor booths featuring both nanoseconds-fast computer switches and Lego play sets.
Given its focus, the conference also included discussion of esoteric – but important – issues in commodities markets. Here are two: position limits and Exchange for Related Positions (EFRPs).
***DA: Plenty of discussion around a new position limits rule to replace the one vacated by a court in 2012. With commodities in freefall and Bart Chilton having moved to the other side, the issue does not appear to be center stage.  

DERIVATIVES: Vol spike revitalises exchanges
Mike Kentz – IFRAsia
An unexpected spike in US equity volatility drove futures and options volumes close to all-time highs in October, delivering welcome profits at major derivatives exchanges that were struggling to weather depressed trading activity.
***DA: The CEO of an options exchange said to me this week at FIA Expo, “We had a good quarter last month.”

Dow, S&P 500 Eke Out Records
Corrie Driebusch – WSJ
U.S. stocks slipped and bonds rose after data showed U.S. jobs increased modestly in October and the unemployment rate declined.
While the jobs report underscored the health of the U.S. economy, investors said the numbers weren’t so strong or so weak to elicit a sharp market move in either direction.
***DA: The Goldilocks Economy – not too hot; not too cold.

Why the VIX Shrugged Off Midterms
Adam Warner – Schaeffer’s Investment Research
There was virtually no bid-up in options prices ahead of Tuesday’s midterm elections.
So, who was the big winner in October? Probably the Chicago Board Options Exchange (CBOE).
***DA: The market shrugged off a lot of stuff this year. Then, when least expected, a mini-panic ensued. Go figure.

Weekly Market Commentary 11.7.14
Larry McMillan – CBOE Options Hub
The rally continues to push to new all-time highs in most of the major broad-based indices ($SPX, $OEX, Dow, etc.).  The advance has been so straight and fast that it hasn’t left any support levels in its wake.  The only one was at 2001, so a pullback below 2000 would be negative.
***In a runaway rally, every tick is a support level.

A flock of sheep-bulls: What this market looks like right now
Barbara Kollmeyer – MarketWatch
Call it a bull market if you want, but it’s a market that’s definitely lacking some animal spirits right now.
“The ancient Cretans would do acrobatic tricks with bulls, jumping over them as they charged during their religious festivals. The Hindu religion has a bull named Nandi in its pantheon, a close companion to the “Great god” Shiva. Men in Spain, France and Mexico have fought bulls for centuries to prove their bravery,” writes Nicolas Colas, chief market strategist at ConvergEx, who regularly puts a colorful spin on the state of play.
Not so here.
***DA: So this rally is a bunch of bull?


ICE Benchmark Administration to Become New Administrator of the LBMA Gold Price
Press Release – Intercontinental Exchange
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today announced that following an extensive selection process facilitated by the London Bullion Market Association (LBMA), ICE Benchmark Administration (IBA) has been announced as the new administrator of the LBMA Gold Price. ICE Benchmark Administration expects to assume responsibility of the LBMA Gold Price in early 2015.
The LBMA Gold Price will replace the Gold Fixing Price which has been in existence since September 1919. The price is set in London twice a day and provides a published benchmark price that is widely used as an international pricing medium by producers, consumers, investors and central banks.

Regulation and Enforcement

Powell Calls for More Oversight of Derivatives Clearing
Christopher Condon – BloombergBusinessweek
Federal Reserve Governor Jerome Powell called for more coordinated global regulation of derivatives clearinghouses to increase their liquidity, transparency and ability to withstand shocks without government bailouts.
“Given the increasingly prominent role that central clearing will play in the financial system going forward, it is critical that we collectively get central clearing right,” Powell said in the prepared text of an address he is scheduled to give today at a conference in Chicago.
***DA: The holdup is in Europe, not here. Until the EU offers mutual recognition of U.S. CCPs, we are stuck in a holding pattern.

CCP equivalence standoff becoming a ‘high-stakes game of chicken’
John Bakie – The Trade
Impatience is growing within the derivatives industry as US and European regulators continue to stall on reaching an agreement to recognise each others clearing regimes.
The transatlantic dispute is risking significant disruption to the derivatives markets as the uncertainty of the situation leaves participants in limbo.
Walt Lukken, chairman of the Futures Industry Association described the stalemate as a ‘high-stakes game of chicken’ at the trade body’s Chicago Expo, where the topic was highly disputed.

Living Wills Still Alive for Regulators
Mayra Rodríguez Valladares – Dealbook – NY Times
At a Washington conference on financial stability this week, Jeremiah O. Norton, a member of the board of the Federal Deposit Insurance Corporation, was asked what the midterm elections meant for ending “too big to fail.”
He demurred that he was not in a position to comment on what elected officials may or may not do. What he said next, however, really tells me that irrespective of election results, bank regulators like him are determined to carry on with their ambitious bank reform agenda.


Singapore Exchange says trade glitch caused by ‘ridiculous’ power supply problem
Singapore Exchange Ltd said an outage on its equity and derivatives market that lasted for hours on Wednesday was caused by what its president called a “ridiculous”-sounding failure in a power supply system designed to be uninterruptible.

Traders seek out clues on stocks from Internet employee forums
Sudip Kar-Gupta – Reuters
When digging for insight on a complex retail story such as Tesco, whose shares are at decade lows after profit warnings and boardroom upheaval, every little helps investors – even comments in employee chatrooms.
While it may be far removed from stockbrokers’ traditional balance-sheet analysis, and often less well written, traders and fund managers are scouring online messageboards and forums to gauge mood, morale and management success – information easily overlooked by busy investors.

Options Education

Trading Guide: Touch and Custom Binary Options
Vasil Velev – Forex Magnates
Touch and one touch options are the second most popular choice among binary options traders. Together with options with custom made duration and payout, they complete the four different varieties the industry offers.

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