JLN Options: Facebook Bulls Buy WhatsApp Deal With 1.3 Million Calls; No Cheap Options On Tesla As Stock Burns Rubber To New Highs; Not Your Father’s Options Market!

Feb 25, 2014

Lead Stories

Facebook Bulls Buy WhatsApp Deal With 1.3 Million Calls
Callie Bost and Nikolaj Gammeltoft – Bloomberg
Count options traders (FB:US) among investors who have managed to get past concerns that Mark Zuckerberg is overpaying for WhatsApp Inc.
They’ve bought and sold 554,000 bullish calls on Facebook Inc. (FB:US) daily since Feb. 20, up from a 2014 average of 247,000, data compiled by Bloomberg show.

No Cheap Options On Tesla As Stock Burns Rubber To New Highs
Andrew Wilkinson – Forbes
Years ago when savvy investors talked about a potential moonshot on a stock, they’d talk about making money using the proverbial “cheap option.” Buying out-of-the-money call options for pennies in comparison to laying out even half due to the power of buying stock on margin could lead to a huge payday for those in the know, if and when bull fever took hold.
Have those days passed us by?

Not Your Father’s Options Market!
Andrew Wilkinson – Wall Street Pit
Years ago when savvy investors used talk about a potential moonshot on a stock, they’d talk about making money using the proverbial “cheap option”. Buying out-of-the-money call options for pennies in comparison to laying out even half due to the power of buying stock on margin could lead to a huge payday for those in the know, if and when bull fever took hold. Have those days passed us by?

Can we finally lay to rest the idea that zombies justified their existence in 2008?
Dan McCrum – FT Alphaville
When it comes to hedge fund performance there are a lot of excuses deployed to justify the billions of dollars charged in fees every year for sub-par returns.
One is that the benchmark for comparison (we like a simple 60:40 mix of US stocks and bonds) is unfair, that “risk adjusted returns” would demonstrate hedge fund superiority. Another is that hedge funds aren’t supposed to outperform a bull market in stocks, but they proved their worth in the 2008 crisis.
Neither is true.

Gold to Coffee Drive Bullish Bets to 17-Month High
Elizabeth Campbell – Bloomberg
Hedge funds boosted bullish commodity bets to the highest since 2012 as extreme weather threatened global crops and a polar blast increased U.S. demand for heating fuel.
The net-long position across 18 U.S.-traded commodities rose 18 percent to 1.25 million futures and options in the week ended Feb. 18, the highest since September 2012, U.S. Commodity Futures Trading Commission data show.

Hold Tight for Higher Volatility
Jane Searle – The Street
Hold tight for higher volatility ahead. That’s the message from market pundits, who warned that several factors will lead to greater equity volatility in 2014.
These factors include uncertainty on stimulus withdrawal from the Federal Reserve, a rocky transition for emerging markets as global rates rise, lower expectations for earnings growth, and concern around slower growth for China.

Videocast: VIX action shifts later

EU Searches for Meaning of Derivative as Rules Take Effect
Ben Moshinsky – BloombergBusinessweek
What is a derivative? Don’t ask the European Union — you might get 28 different answers.
The EU’s top markets regulator, the European Securities and Markets Authority, asked the European Commission to clarify what a derivative is as it grapples with harmonizing trade reporting rules across the 28-nation bloc.

National Stock Exchange of India to Launch Volatility Futures
Shefali Anand – The Wall Street Journal
India is set to join a growing list of Asian-Pacific countries providing investors a way to hedge against stock market volatility.
On Wednesday, National Stock Exchange of India Ltd., the country’s largest stock exchange by trading volume, will launch a futures contract tied to volatility in its benchmark CNX Nifty stock index.

India listed derivatives market faces infrastructure hurdle
Blake Evans-Pritchard – Risk Magazine
India stock exchanges are predicting strong growth in the market for listed derivatives. With algo traders driving volume growth, can current infrastructure cope with the increased requirements?

Can HFT Save Rising Transaction Costs?
Adam Warner – Schaeffer’s Investment Research
The market has essentially churned for the first two months of 2014, which suggests that a more active trading strategy should be a value-add. Let me rephrase that — active trading could be a value-add … you still have to trade well. The bar is simply lower when you’re trying to beat 1% returns of buy and hold then if you’re trying to beat the monster gains of 2013.


ICE Dumps Pepper in Singapore to Pave Way for Asia Growth
Chanyaporn Chanjaroen and Nandini Sukumar – Bloomberg
IntercontinentalExchange Group Inc. (ICE) began renovating its newly purchased Singapore Mercantile Exchange, delisting all contracts such as black pepper and metal futures.
The move, disclosed in a statement to Bloomberg News, clears the way for the world’s second-largest exchange operator by market value to list its own products including Brent crude contracts and interest-rate futures.

CBOE Holdings to Present at Raymond James Institutional Investors Conference on Tuesday, March 4
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that Edward T. Tilly, Chief Executive Officer, will present at the Raymond James & Associates 35th Annual Institutional Investors Conference in Orlando, Florida on Tuesday, March 4, 2014, at 4:30 p.m. Eastern Time.
The presentation, to be broadcast live over the Internet, can be accessed at www.cboe.com under Investor Relations, Events and Presentations. Approximately 24 hours after the live presentation, an audio Webcast will be available for replay at the same address.

Regulation and Enforcement

CME Group fines traders for transactions that worried regulator
Tom Polansek – Reuters
CME Group Inc, the largest U.S. futures exchange operator, on Monday announced fines against nine traders and clearing members for violating rules governing a type of transaction that U.S. regulators expressed concerns about last year.

Paying the Price for Insider Trading Profits
Peter J. Henning – The New York Times
Can a criminal be held responsible for what others gained from his violation? An appeals court answered “yes” when the crime was insider trading and the profits went to a hedge fund rather than directly to the defendant.

House Panel to Examine Key Trading Rule
Andrew Ackerman – The Wall Street Journal
House lawmakers plan Friday to examine the effects of a 2007 Securities and Exchange Commission rule designed to encourage faster and cheaper electronic trading that critics warn has unintentionally harmed investors.

The road to reporting
The Trade
Market participants have had to report derivatives trades since 12 February. Many buy-side firms have decided to delegate reporting, giving the job to a third-party or broker. Others have chosen to do the reporting themselves, as at the end of the day, the responsibility will always fall on them. There have been reports of firms still seeking help with reporting after deadline, however.


Al’s Calls of the Day: Market Banter
Al Sherbin – The Options Insider
Today, I just want to “banter” a bit about the market.  In late January / early February, the market sold off around 6%.  Yet coming into today, the market was back knocking on all-time highs.  (In fact, as of this writing, we have exceeded the old highs.)  But, there are a few things different this time around! 

Options Education

Reading in Lieu of Bearishness
The Options Insider
You know that one slogan about how bearish investors always sound “smarter,” even if they’re wrong most of the time? I’m not sure that being able to conjure up obscure risk scenarios is the same thing as sounding smart. But nevertheless, here is a linkfest in the spirit of that slogan: sometimes, taking some time out to read is a good way to avoid buying stuff at too high a price.



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