JLN Options: Fed's Readiness To Reduce Stimulus Sinks Stocks; Options Traders Remain Optimistic on Retailers into Holiday; Recent gold options trading indicates complacency

Nov 20, 2013

Commentary and Insights

Jim Bennett

Connecting the Data Dots: Sapient’s Jim Bennett Talks Compliance Reporting
JohnLothianNews.com
New financial regulation has ushered in a host of reporting rules for over the counter and listed markets. Jim Bennett of Sapient Global Markets knows full well how critical it is to properly integrate compliance systems. “Standardized, automated messaging is the key” to reporting says Bennett, but platforms must also be flexible enough to interface with internal systems. Bennett sat down with John Lothian News editor-at-large Doug Ashburn to explain Sapient’s approach to Dodd-Frank and EMIR reporting, and how its Compliance Management and Reporting System (CMRS) is helping firms meet the regulatory challenge.

Watch the video »

Lead Stories

Fed’s Readiness To Reduce Stimulus Sinks Stocks
The Associated Press (via NPR)
New signs that the Federal Reserve is getting ready to reduce its extraordinary support of the U.S. economy sent stock and bond prices lower on Wall Street Wednesday.
Minutes from the Federal Reserve’s latest meeting on Oct. 29-30 showed that the U.S. economy was improving steadily enough to warrant a reduction in stimulus “in coming months.”
http://jlne.ws/188Vfvx

Options Traders Remain Optimistic on Retailers into Holiday
Kaitlyn Kiernan – The Wall Street Journal
Retailers have been the strongest performing industry group this year, outperforming the S&P 500 by 15%, but that hasn’t deterred bulls optimistic that the sector will continue to shine into the New Year.
http://jlne.ws/HZXp45

Recent gold options trading indicates complacency
Ole Hanson – TradingFloor.com
Recent behaviour amongst traders in gold options points to emerging complacency, with volatility falling and reduced expectations for a major break out of the current range between USD 1,250 and USD 1,300/oz.
http://jlne.ws/HZYhpm

Gold futures suffer brief halt after sudden $10 drop: Nanex
MarketWatch
Sudden drops in gold prices and temporary trading halts in gold futures on the Comex division of the New York Mercantile Exchange seem to be becoming the norm.
http://jlne.ws/188TRsU

A Holiday Gift from the Vix
Chad Karnes – MoneyShow.com
In March 2013 the Volatility S&P 500 Index (VIX) did something it had not done in over six years. It closed below $12. This six year low in March was accompanied by a new all-time closing high in the market as the S&P (SPX) surpassed its 2007 price high of 1565.
Since then the VIX has seen its fair shares of ups and downs, but interestingly it has yet to reach lower levels than it did back in March.
http://jlne.ws/HZYrNJ

Videocast: What’s behind VIX print
optionMONSTER
http://jlne.ws/HZZ3me

Emerging market hedging costs at five-year high to US: options
Santanu Chakraborty – Livemint
Mumbai: The cost of options protecting against swings in emerging market stocks has climbed to an almost five-year high versus US contracts as economic growth slows from India to Brazil and foreign investors sell.
http://jlne.ws/HZZuwT

Exchanges

Direct Edge CEO: Investors aren’t getting ripped off
Christina Rexrode – MarketWatch
The company is preparing to merge next year with its longtime rival in the stock-exchange operations game, BATS Global Markets Inc. That will make it the second-biggest U.S. stock-exchange operator by volume behind the parent company of the New York Stock Exchange, which is just the latest sign of tectonic shifts in power throughout the industry, as human traders get replaced by computer algorithms.
http://jlne.ws/1ehRHWE

Regulation and Enforcement

The Pros and Cons for Crash-Proofing the Markets
Robert Stowsky – Traders Magazine
At a meeting of the Commodity Futures Trading Commission’s Technical Advisory Committee in September, Commissioner Scott O’Malia posed a question: Should the risk controls developed by the leading futures exchanges be “federalized” into regulations? Industry veteran Cliff Lewis spoke for many, if not most, market participants when he responded, “Don’t do it!”
http://jlne.ws/HZVCvP
**Part of the problem is no one really knows what the problems are.  At least not on a fundamental level.  If the exchanges will not make the effort to really dig into the problem and get at its root perhaps the government can.  After that people can start talking about possible solutions. -JB

Lew ‘optimistic’ Volcker rule will be finished this year
Erik Wasson and Peter Schroeder – The Hill
Treasury Secretary Jack Lew said Tuesday that he is optimistic the long-delayed Volcker rule governing proprietary trades will be completed this year.
http://jlne.ws/HZY4CM

DERIVATIVES: CFTC opens door to agency bank swaps model
Mike Kentz – IFR Asia
Newly-issued guidance from the CFTC has given the nod to an agency-style business model for dealers in over-the-counter derivatives that will dramatically alter the way banks interact with clients and profit from swaps trading.
http://jlne.ws/HZYcCh

CME CEO: Hacking Is A Problem For Everyone
ValueWalk
Chicago Mercantile Exchange Group (CME) Executive Chairman and President Terry Duffy spoke with FOX Business Network’s (FBN) Liz Claman about the cyber intrusion at the CME in July. Duffy said, “this isn’t just a CME problem this is everyone’s problem, whether you are an exchange, a bank or somebody else.”
http://jlne.ws/HZYA3A
**Indeed it is.  The issue here is most companies are loathe to admit they are getting hacked for fear of spooking investors/customers.  As a result it is more difficult to mount a coherent effort against the attackers. -JB

Strategy

TLT Options – Bye Bye, Bonds!
Tyler Craig – InvestorPlace
After an ever-so-brief rally, it appears bond prices are once again losing their battle with gravity. Concerns over an eventual tapering of the Fed’s bond purchases — along with the ongoing realization that interest rates are headed higher — have returned to haunt the dreams of bond bulls yet again.
http://jlne.ws/HZZmh4

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