JLN Options: FX Options Activity Spikes at CME After Draghi’s New Plans; Japanese Take Multiple Stock Bets as Volatility Sinks to ’06 Low; Can Traders Survive the Commodities Exodus?

Sep 5, 2014

Lead Stories

FX Options Activity Spikes at CME After Draghi’s New Plans
Forex Magnates
The world’s largest derivatives exchange, the CME, has reported a record high for daily trading volumes in its FX Options segment, crossing $32 billion. The firm also saw an uptake in open interest positions.
After a bleak summer of disappointing trading volumes in global financial markets, an unexpected move by the European Central Bank triggered a spree of activity. The Chicago Mercantile Exchange (CME) saw a sharp rise in trading metrics in its FX Options division yesterday after the European central banker spoke about the future of the markets.

Japanese Take Multiple Stock Bets as Volatility Sinks to ’06 Low
By Regina Tan, Bloomberg
An almost eight-year low in stock-index volatility in Japan is driving individual investors in the nation toward offerings of structured notes linked to multiple equities as they seek higher returns.
Some fifteen notes whose returns are tied to the performance of more than one stock were sold in Asia’s second-biggest economy in August, the most on record, according to Bloomberg-compiled data back to 1997. Volumes quadrupled to $180 million from July, the data show.

Can Traders Survive the Commodities Exodus?
Renee Caruthers – Traders Magazine
When Credit Suisse announced in July that it would be exiting its small commodities trading business, it added its name to a growing list of investment banking firms winding down their participation in the trading of wheat, sugar, gold and oil.
In the spring, Barclays announced its withdrawal from most commodities with the exception of precious metals, commodities indexes and derivatives tied to oil and gas. That announcement came after the British multinational bank had already cut back raw materials trading in January. Deutsche Bank, which had been a top five financial player in commodities, announced at the end of last year that it was exiting most raw materials markets while retaining its $9 billion commodities index fund trading. UBS has slimmed down much of its commodities, retaining its commodities index business and JPMorgan announced plans to sell its physical commodities unit to Swiss trading firm Mercuria.

Volatility picks up ahead of Scotland vote
By Christopher Whittall, IFR Asia
Volatility in rates and foreign exchange markets will continue to tick upwards ahead of the referendum on Scottish independence, traders say, as more investors look to hedge against what was widely dismissed as a mere tail risk up until recently.
A YouGov poll released on Monday, which showed the lead narrowing for the pro-unionist vote, sent jitters through currency markets, with one-month at-the-money sterling-US dollar and sterling-euro options volatility spiking to six-month highs of 6.3% and 6.8%, respectively.

Rupee Volatility Declines for Fourth Week on Economic Optimism
By Kartik Goyal, Bloomberg
A gauge of expected swings in India’s rupee fell for a fourth week on optimism the nation’s improving economy will draw capital from abroad.
Gross domestic product increased 5.7 percent from a year earlier in the April-June period, the most since the first quarter of 2012, official data showed Aug. 29. Global funds have pumped more than $10 billion into the nation’s bonds and stocks this quarter, exchange data show.

RMC Presentation on Tail Hedge Management
Matt Moran – CBOE Options Hub
One of the reasons for increased interest in tail hedging in recent years is the fact that, during the drawdown period from Oct. 31, 2007 through Feb. 28, 2009 several major “traditional” traditional indexes experienced big drops of worse than 50% (in total returns with reinvested dividends), while the CLL Index dropped 35.4% and the S&P 500 VIX Mid-term Futures Index rose 131.7%

Correlation and Dispersion Trading Discussion at CBOE RMC Conference
Russell Rhoads – CBOE Options Hub
One of the final sessions of the day teamed up Daniel Danon, Senior Vice President, Portfolio Management and Structuring at Assenagon Asset Management and Tim Edwards, Director of Index Investment Strategy at S&P Dow Jones Indices. Their presentation was titled Correlation and Dispersion: What They Mean and How to Trading Them.
Tim Edwards began the presentation stating that many correlation traders are actually acting a dispersion traders.

Management of Asian and Cliquet Option Exposure at CBOE RMC
Russell Rhoads – CBOE Options Hub
The speakers for this session were Pin Chung Chief Financial Officer and Chief Investment Officer, R+V International Business Services Limited and Dr. Rachid Lassoued, Head of Financial Engineering from Bloomberg. The session title was Management of Asian and Cliquet Option Exposures for Insurance Companies.
Dr. Chung began the session by reviewing Asian and Cliquet options.


CME Group Announces Foreign Exchange Options Record
FX options traded $32.4 billion in notional volume; 94 percent electronic
CHICAGO and LONDON, Sept. 5, 2014 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, announced a record volume trading day for yesterday, September 4, in its Foreign Exchange options complex.

ICE to Acquire SuperDerivatives for About $350 Million
Seeks to Expand Financial Market Clearing and Data Services
Erin McCarthy, WSJ.com
Intercontinental Exchange ICE +0.57% said Friday that it would acquire SuperDerivatives for about $350 million in cash to expand its financial market clearing and data services.
SuperDerivatives provides risk management analytics systems across all asset classes, including foreign exchange, interest rates, equities and commodities. ICE said the acquisition will help it expand its multi-asset-class clearing strategy. SuperDerivatives, which was founded in 2000, is based in New York and has more than 300 employees. The company also provides valuation services and market data.

Intercontinental Exchange Announces Launch of 30 New Energy Contracts at ICE Futures Europe and ICE Futures U.S.
September 5, 2014
LONDON–(BUSINESS WIRE)– Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, today announced the introduction of 30 new energy futures and option contracts on September 22, 2014, subject to the completion of necessary regulatory and governance processes.
The new contracts, which will be available for trading at either ICE Futures Europe or ICE Futures U.S. and cleared at ICE Clear Europe include: crude oil and refined products, North American and UK natural gas, US power, natural gas liquids (NGL), and wet freight futures and option contracts.

BATS Successfully Operates U.S. Businesses From Disaster Recovery Site As Part of Business Continuity Planning Process
Press Release – BATS
Company Headquarters Taken Completely Offline For Test of Business Continuity Plan on September 4th
KANSAS CITY, Mo. – Sept. 5, 2014 – BATS Global Markets (BATS), a leading operator of securities markets in the U.S. and Europe, today announced the successful and total operation of its U.S. equities exchanges BZX and BYX, and BATS Options, from its disaster recovery (DR) site yesterday as part of its Business Continuity Planning (BCP) process.

Regulation and Enforcement

Swaps Rule Requires $644 Billion in Collateral, Regulator Says
Silla Brush and Jesse Hamilton – Bloomberg
U.S. banks would need $644 billion in collateral to offset risks in swaps traded among themselves, according to an analysis of rules re-proposed by regulators.
The Office of the Comptroller of the Currency released an estimate yesterday laying out costs for companies including JPMorgan Chase & Co. (JPM), Bank of America Corp. and Citigroup Inc. (C) to support trades that won’t be guaranteed by clearinghouses.


Asset Allocation Rebalancing Using Short Options
CBOE Options Hub
Dr. Christoph Gort, Partner, SIGLO Capital Advisors and Pav Sethi, Chief Investment Officer, CEO, Gladius Investment Group, teamed up for the “Asset Allocation Rebalancing Using Short Options” session on Thursday afternoon.  In the presentation, they highlighted results from an empirical study on the use of SPX options to implement allocation shifts with market moves.  Interestingly, the genesis for the study was a conversation between SIGLO and CBOE at last year’s CBOE Risk Management Conference Europe in Portugal.  SIGLO’s recently published study found that while not a new concept, rebalancing with options can be very efficient.

Straddle AAPL Stock Ahead of Its Big Event
The situation around Apple stock is uncertain and volatile – the perfect storm for a straddle play
By Joseph Hargett, InvestorPlace
Apple (AAPL) is getting blasted this week as the company deals with iCloud Celebrity Photo-gate and slipping confidence within the analyst community.
apple Straddle AAPL Stock Ahead of Its Big EventWhat’s worse is that this PR nightmare is taking place on the eve of what is widely expected to be Apple’s first new product launch since 2010.

Videocast: VIX pits target 17 level
Chris McKhann, OptionMonster

Options Education

Options in 3D!
Randall Liss – The Liss Report
It is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens” – Philip Fisher (1909)
Those words of old wisdom illustrate why one must approach trading options three dimensionally. Those dimensions being: Direction. Time. Velocity. One needs to be aware of all three and an adept trader can trade all three simultaneously. Indeed, one must trade all three.

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