JLN Options: Forest Labs $2.55 Million Options Trade Doubles Money; Equity Volatility Wagers Jump to High Versus Gold, Oil; SPY And Fed Minutes: Loading Up For Volatility

Feb 19, 2014

Lead Stories

Forest Labs $2.55 Million Options Trade Doubles Money
Cecile Vannucci – Bloomberg
A block of 5,000 options betting on a 28 percent jump in Forest Laboratories Inc. (FRX)’s shares that cost $2.55 million to buy last week more than doubled in value to $6 million today after Actavis Plc agreed to buy the drugmaker.

Equity Volatility Wagers Jump to High Versus Gold, Oil
Alexis Xydias – Bloomberg
U.S. equity option costs climbed to the highest levels in almost a year relative to Treasuries, oil and gold, pushed up by traders betting stocks are more vulnerable to Federal Reserve tapering after rallying the most.

SPY And Fed Minutes: Loading Up For Volatility
Nicholas Santiago – Investing.com
The Federal Reserve minutes will be released at 2PM ET today. This will give significant insight into what the Federal Reserve discussed during its last meeting. The markets will be looking for key chatter about whether there could be a pause to QE taper or if they plan to go full speed ahead with cuts. In the last two Federal Reserve meetings, QE has been cut by $10 billion each time. The market will be very happy if the Federal Reserve said they were leaning towards a more lenient policy on cuts to QE.

Indexology: The VIX Factor
ETF Trends
After a strong 2013, the US equity market took a dive in January 2014 and dropped more than 3%. Is it a temporary market correction or something more substantial? Everyone has his own answer. Regardless of your outlook of the market, January has reminded us that market volatility is still one of the major risks that investors have to take care of.

An Overview of Weather Derivatives
Daniel Kurt – Investopedia
From hiring to product pricing, businesses make countless decisions that affect their performance. Yet there’s one very important factor that they can’t control – the weather.
Certainly, farmers depend on Mother Nature to make a profit. But so too does an electric utility that faces an unusually mild summer or a city government that has to pay an unprecedented snow removal bill.

Volatility ETFs Crash as Market Fears Drop – ETF News And Commentary
The U.S. stock market saw a soft start to the year on rising fears of a faster QE taper, the subsequent withdrawal of cheap dollars, as well as the emerging market lull. But the scenario took a sharp turn with downbeat job, retail and manufacturing data, which sent markets tumbling (read: 3 Low Risk ETFs for a Stormy Market ).

Don’t Fight a Quiet Rally
Tomi Kilgore – The Wall Street Journal
A quiet rally is nothing to scoff at, some market watchers say.
Trading volumes have been relatively low during the market’s bounce over the last couple weeks, but that doesn’t mean the S&P 500 can’t keep rising to new highs, and beyond, technicians say.

Videocast: Why the VIX was high

U.S. Stocks Retreat as Fed Minutes Indicate More Cuts
Nick Taborek – Bloomberg
U.S. stocks fell, after the Standard & Poor’s 500 Index rose to within one point of a record close, as the International Monetary Fund warned of risks to global growth and Federal Reserve indicated stimulus cuts will likely continue.

Would This 1 Change Make the Dow a Much Better Index?
Alex Planes – The Motley Fool (via Daily Finance)
Yesterday, we looked at how the 30 components of the Dow Jones Industrial Average represent — accurately or otherwise — the U.S. economy. As we found out, they aren’t particularly accurate representatives of the American business landscape, particularly since financial stocks now account for a quarter of the Dow’s value despite contributing less than 7% of national GDP.

Warren Buffett, The Lost Tycoon
Martin Sosnoff – Forbes
No typo here. I do mean lost tycoon, not F.Scott Fitzgerald’s The Last Tycoon, about his fictional movie mogul, Monroe Stahr. I’m bothered by Buffett’s final morphing into his staid money management construct, saddling himself with underperforming big capitalization properties like ExxonMobil, IBM and Wal-Mart.


CME chases Australian alliance
Dan Barnes – Financial News
The CME Group is in talks to develop a clearing partnership with the Australian Securities Exchange, as the US futures giant looks to push into the Asia Pacific over-the-counter derivatives market.

Regulation and Enforcement

SEC Gains Power to Take Profit Made for Firms in Insider Trading
Christie Smythe – Bloomberg
The U.S. Securities and Exchange Commission won an appeals court ruling that may allow it to collect illegal proceeds from money managers who engage in insider trading even when their firms got all the profit.

Down The Data Rabbit Hole With The CFTC
Jennifer Costley – Wall Street & Technology
If you drill down far enough, eventually you might find the truth when it comes to regulatory reporting, data and the goal of assessing systemic risk.


Implied Volatility Drops and Investors Should Look to Hedge
The weather is now the culprit that is taking the blame for nearly every negative economic data point and this is allowing stocks to move higher, despite a disappointing economic backdrop.  The question for investors is how long this will last, and whether (excuse the pun) they need to find a way to protect themselves from another market downdraft.

Options Education

OXY Spin Off Announcement and Options Impact
Jared Woodard – The Street
Occidental Petroleum (OXY) announced plans last week to spin-off its business in California as a separate company and to move its headquarters to Houston. An investor who owns long-dated call options asked what would happen to his position, since the company break-up is scheduled to occur by the end of 2014 or in early 2015, before his calls expire.

Speed of SPX Rally in One Shot
Mark Sebastian – The Options Insider
As we have stated, the SPX and the VIX are acting quite differently than the last time around.  Previously,  when the SPX was near 1840  the VIX was below 13,  closer to 12.50.  Now, with the SPX back at 1840 (getting there in a hurry), the VIX is between 13.75-14, and has not been able to break 13.50.



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