Observations and Insight
Glass Half Full: Options Industry Looks Pretty Good To Retail, European Traders
Jim Kharouf – John Lothian News
The options industry is seeing an uptick in retail participation, with individuals accounting for 24.3 percent of the volume in Q1 2014, according to Tabb Group.
Andy Nybo, principal and head of derivatives research with Tabb, told the audience at the Options Industry Conference in Austin last week that retail investors are increasing their presence in options slowly but surely. Over the past four years, retail volume has risen a compound annual rate of 4.3 percent, up from 21.8 percent in 2010, 20.1 percent in 2011, 21.8 percent in 2012 and 23.7 percent last year.
Nybo said that better trading tools, strong education efforts and low commissions have helped drive retail business in recent years.
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Twitter Options Volume Surges Fivefold in Social Media Rout
Joseph Ciolli and Trista Kelley – Bloomberg
Frenzied equity trading that erased $13 billion from the biggest social media stocks yesterday pushed volume in Twitter (TWTR) Inc.’s options up fivefold, all but wiping out value in a series of bullish contracts.
Almost 600,000 Twitter options changed hands yesterday, compared with a 20-day average of 109,000.
Options Traders Brace for Tesla Swing; Declines May Spell Trouble
Tomi Kilgore – The Wall Street Journal
Options traders are bracing for a doubled-digit swing in shares of Tesla Motors Inc. after it reports first-quarter earnings today. But given how wild the company’s stock has been, that’s not so unusual.
More important for the stocks outlook, says one technical analyst, is that a selloff on earnings could pave the way for more losses to come.
Volume, Volume, Where Are You?
Richard Gobel – The Street
The market selloff that I have been looking for finally made itself present on Tuesday. After the futures were up early on Tuesday morning, the stock market opened to the downside and continued to trade lower during the day.
The DJIA closed down 129.53 points to 16401. The S&P 500 closed down 16.94 at 1867.72. The big loser on Tuesday was the Nasdaq, down 57.30 points at 4080.75. The Russell 2000 closed down 18.29 points at 1108.
Short Sellers Pounce on Twitter’s Drop
Steven Russolillo – The Wall Street Journal
Short sellers are pouncing on Twitter Inc.’s big drop this year, taking a bearish view that the stock still has room to fall.
Twitter shares have tumbled more than 50% this year, including an 18% drop Tuesday when a key lockup period expired, giving early investors and employees their first, big chance to sell their stock. Now, it appears, many investors are betting that the stock will continue to drop.
Junk-Bond Traders Pile Onto Hedges Amid Fed After Rally
Namitha Jagadeesh and Inyoung Hwang – Bloomberg
With the Federal Reserve getting ready to boost interest rates, investors are adding hedges to junk bonds as they grow ever more expensive versus stocks.
There haven’t been this many bearish options on an exchange-traded fund tracking high-yield debt in almost a year, relative to bullish contracts, according to data compiled by Bloomberg. Puts protecting against a 4.3 percent decline in the ETF by June had the largest ownership, the data show.
Speed, Listing Exclusivity Promote New Volatility Index Options
Timothy Bourgaize Murray – WatersTechnology
Patrick Fay, director of listed derivatives at Russell Investments’ index arm, says the way to a successful volatility index option is through the buy side. The rub? Not every buy-side firm understands derivatives the same way.
BGC Partners Receives Approval to Broker FX Options in China
Press Release (The Wall Street Journal)
BGC Partners, Inc. (NASDAQ: BGCP) (“the Company” or “BGC”), a leading global brokerage company servicing the financial and real estate markets, today announced that China Credit BGC Money Broking Company Limited (“CCTBGC”), its joint venture with China Credit Trust Co. Ltd., has been granted a license by the State Administration of Foreign Exchange (“SAFE”) to broker FX options to the interbank market in China.
What’s Next On the Volatility Front?
The issues with being overly prepared
Adam Warner – Schaeffer’s Investment Research
“One last thought on volatility, which has seemingly compressed across asset classes. I don’t think this is a coincidence: In our interconnected world, global asset classes are tied together in some way, shape, or form. It stands to reason that as volatility in one complex is muted, it transcends others.”
Videocast: Put spread hits VIX
Do not expect volatility to reach 2009 highs: Edelweiss
Despite the VIX inching up from 35 percentage levels to around 40 percentage levels, Yogesh Radke, Head of Quantitative Research of Edelweiss Securities does not expect volatility to reach 2009 highs.
Radke advises buying 6800 call and shorting 7100/7200 call option as this strategy will give gains from the upside but even if there is some amount of downside, one can be protected.
Mechanics Back to Normal in 11 ProShares ETFs
Brendan Conway – Barron’s
The snag behind the scenes in nearly a dozen ProShares exchange-traded funds is resolved as of this afternoon, according to the company, which is good news for traders of these instruments of hedging and speculation.
SGX beefs up commodities offering
Anna Irrera – Financial News
Singapore Exchange is ramping up its suite of commodities products by offering nine new derivative contracts, a move which underlines the bourse’s aim to cement itself as the region’s leading commodities market.
SGX has announced today that over the next two months it will introduce options-on-futures for iron ore and freight, coking coal derivatives and thermal coal derivatives.
Regulation and Enforcement
U.S. CFTC preparing rules for computer-driven trading
Douwe Miedema – Reuters
The U.S. derivatives regulator is working on a proposed rule for computer-driven trading, a commissioner at the agency said on Tuesday, after the agency asked market participants for insights on a long list of issues on the controversial practice.
High-Speed Trades Outpace CFTC’s Oversight, O’Malia Says
Silla Brush – Bloomberg
The U.S. Commodity Futures Trading Commission isn’t keeping up with high-speed derivatives trading and needs to invest in tools to detect manipulative and disruptive practices, said Scott O’Malia, a Republican commissioner.
The CFTC lacks the technology necessary to routinely oversee the millions of messages traders send every day to futures exchanges operated by CME Group Inc. and IntercontinentalExchange Group Inc., O’Malia said yesterday in a speech prepared for a Tabb Forum conference in Chicago.
Exclusive: SEC probing brokerages over handling of retail orders – sources
Sarah N. Lynch and Emily Flitter – Reuters
The Securities and Exchange Commission has sent out subpoenas and demands for records to brokerage companies as part of a probe into how retail customers’ orders are routed, executed and filled, according to several people familiar with the matter.