JLN Options: Hedge Funds Revel in Volatility as Gains Tag Along; Why the VIX may not be such a great fear gauge; US Option Market Demographics Discussion at RMC

Sep 3, 2014

Lead Stories

Hedge Funds Revel in Volatility as Gains Tag Along
Ye Xie and Liz Capo McCormick – Bloomberg
After posting three straight years of losses that thinned the ranks of hedge funds specializing in currencies, the foreign-exchange market is showing signs of rebounding.
Parker Global Strategies LLC’s index of leading currency funds climbed 0.9 percent in August, the most since January 2013 and trimming losses in 2014 to 2.2 percent. That followed a 0.3 percent gain in July, the first consecutive advance since October, as diverging policies among central banks create wider price swings for investors to exploit.

Why the VIX may not be such a great fear gauge
Kate Kelly – CNBC (via Yahoo Finance)
The CBOE Volatility Index, a popular gauge of whether people are expecting gyrations in the market, just saw its biggest monthly plunge in nearly three years. So are we headed for a mellow September?
Not necessarily, if you ask some of the major hedge funds, who say they’re torn between betting both on a stock-market downturn and on a sharp rise up in the U.S.-and can’t decide which is the more compelling case to make.

US Option Market Demographics Discussion at RMC
Russell Rhoads – CBOE Options Hub
The final presentation of the first day of the CBOE RMC Europe conference was delivered by Andy Nybo from TABB Group, Steven Sears from Barron’s, and Leaf Wade of UBS. I was personally looking forward to this presentation, US Options and Volatility Market Client Demographics, and was not disappointed. The specific discussion centered on the results of TABB Groups research of US listed options trading along with insights into the different uses of products.

More U.K. Risk Than Scottish Independence Vote
Richard Barley – WSJ
U.K. markets got a rude awakening this week. A sharp rise in the polls for support for Scottish independence led sterling to fall nearly 1.5 cents against the dollar Tuesday and created extra volatility. The political risks in the U.K. go beyond the Sept. 18 vote, however.

Videocast: VXST sees low volatility

The S&P 500 Starts September With a Thud
Anthony Mirhaydari – InvestorPlace
Traders and investors returned from the last hurrah of summer and were greeted with a cold dose of reality Tuesday. Isis extremists are beheading journalists. Russia backed separatists are on a roll in Ukraine. Major central bank decisions loom. And corporate bonds are under pressure — especially junk bonds — in a way that has accompanied turbulence for stock prices.


Nasdaq CEO: We have to confront brutal reality
Geoff Colvin – Fortune
When Robert Greifeld, 57, became Nasdaq’s chief in 2003, it ran one equity market in the U.S. Today, it owns and operates 26 markets globally for trading stocks, bonds, derivatives, and commodities; its technology runs 70 markets on six continents. Greifeld’s aggressive expansion has been necessary to keep Nasdaq OMX relevant in an industry being heavily disrupted by infotech and globalization. He talked recently with Fortune about high-frequency trading, U.S. competitiveness in capital markets, and more.

IEX Raises $75 Million in Capital Offering to Pursue Exchange Status
John D’Antona Jr. – Traders Magazine
Buyside-owned Trading venue IEX is on the fundraising trail – raising $75 million to continue funding the alternative trading network’s quest to become a full-fledged exchange.
This latest round of funding was led by Spark Capital with participation from Bain Capital Ventures, Franklin Resources, Inc., Jim Clark, MassMutual Ventures and investor Steve Wynn.

Six Takeaways from the WSJ Article on NYSE
Phil Albinus – Traders Magazine
You don’t need a $2 million seat on the floor of the New York Stock Exchange to know that the venerable bourse has seen better days. Sure, the surroundings are glitzy thanks to a high-tech makeover and the presence of cameras and lights for daily business news programs but the days when a good chunk of Wall Street deals were made on the floor of the 222-year old NYSE are long gone.
As a reader of Traders, you already know this. But today’s story in the WSJ brought it all home and bears some close reading.

CME injects £10m into European exchange
Financial News
Chicago-based derivatives exchange CME Group has injected another £10 million into its fledgling European derivatives exchange, taking its total spend on the new venture to over £35 million.
Companies House filings show the additional funding was received on July 10. The money will be used to meet regulatory requirements, according to a person close to the exchange.

The Options Industry Council and Borsa Istanbul VIOP Sign Content Sharing Agreement
Press Release (OIC)
The Options Industry Council (OIC) announced today that it has entered into a content licensing agreement with Borsa Istanbul Derivatives Market (VIOP) to develop an options education program for Turkish financial professionals and investors.
As part of the content sharing agreement, OIC’s educational materials and curriculum will be available to Borsa Istanbul VIOP as they create an options education program with the goal of further increasing the financial literacy of Turkish investors by offering education on the responsible use of options as a risk-mitigating tool while conveying the benefits and risks of options trading.

CME Group Volume Averaged 13.0 Million Contracts per Day in August 2014, Up 7 Percent from August 2013
Press Release (CME Group)
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that August 2014 volume averaged 13.0 million contracts per day, up 7 percent from August 2013.  Total volume for August 2014 was more than 273 million contracts, of which 87 percent was traded electronically.  This includes a record 52 percent of options traded electronically.  CME Group open interest hit a record level of 105.6 million contracts on August 14 and stands at approximately 103.7 million contracts at the end of the month, up 3 percent from the end of July 2014 and 24 percent year-to-date.  

ISE Holdings Reports Business Activity for August 2014
International Securities Exchange, LLC
– ISE and ISE Gemini combined represent 16.1% of equity options market share, excluding dividend trades.
– ISE and ISE Gemini reported a combined ADV of 2.2 million contracts.     
– Dividend trades made up 2.0% of industry volume in August 2014.

Options Exchange Marketshare – August 2014
The Options Clearing Corporation (via email)

August 2014 Total Options Marketshare:
AMEX-                 11.25%
BATS-                     5.26%
BOX-                       2.62%
CBOE-                   27.49%                                                            
C2-                          2.04%
GEM-                      3.35%
ISE-                        10.84%
MIAX-                     3.38%
NOBO-                    0.70%
NSDQ-                    8.74%
NYSE Arca-           9.26%
OMX PHLX-         15.08%

August 2013 Total Options Marketshare:
AMEX-                  12.31%
BATS-                      4.10%
BOX-                        2.27%
CBOE-                    28.56%
C2-                            1.94%
GEM-                       0.49%
ISE-                          13.92%
MIAX-                      1.35%
NOBO-                     0.85%
NSDQ-                      8.22%
NYSE Arca-             10.72%
OMX PHLX-           15.27%

August 2014 Equity Options Marketshare:
AMEX-                  12.37%
BATS-                      5.87%    
BOX-                        2.92%
CBOE-                    19.53%
C2-                            2.26%
GEM-                        3.73%
ISE-                         12.05%
MIAX-                       3.77%
NOBO-                     0.78%
NSDQ-                      9.74%
NYSE Arca-           10.21%
OMX PHLX-          16.78%

August 2013 Equity Options Marketshare:
AMEX-                  13.51%
BATS-                      4.54%
BOX-                       2.51%
CBOE-                   21.27%
C2-                            2.14%
GEM-                       0.54%
ISE-                        15.34%
MIAX-                     1.50%
NOBO-                    0.94%
NSDQ-                    9.07%
NYSE Arca-          11.77%
OMX PHLX-         16.87%

Regulation and Enforcement

U.S. Regulators Set to Tighten Swaps Collateral Rules
Silla Brush – Bloomberg
The Federal Reserve proposed collateral requirements for swaps traded between banks, manufacturers and other firms that are less stringent than an initial plan by seeking to limit the impact on smaller firms and global liquidity.
The proposal, also scheduled to be adopted today by the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, seeks to free so-called end users — commercial manufacturers and other non-financial firms that use swaps to hedge business risks — from government collateral requirements.

Industry faces difficult regulatory road to 2015
John Bakie – The Trade
Market participants are facing a tough compliance schedule in the coming months as numerous new regulations come into force globally.
After the long summer break, firms will have to start busily preparing themselves for new rules on settlement, derivatives and trade reporting.

Options Education

RMC Kicks off with Primer on Options and Volatility Strategies
Russell Rhoads – CBOE Options Hub
The first session kicking off the 2014 CBOE Risk Management Conference Europe was led by Paul Stephens from CBOE and Colin Bennett Head of Quantitative and Derivative Strategy at Banco Santander Central Hispano.   Bennett is also the author of Trading Volatility which may be found at www.trading-volatility.com.
This session was a great primer for the information that is going to be delivered throughout the rest of the conference. The three topics covered were volatility risk premium, hedging and long volatility strategies, and VIX and volatility trading.

Directional Option Trading Strategies Discussion at RMC
Russell Rhoads – CBOE Options Hub
Bill Looney from CBOE and Oleg Lugovkin who is a volatility portfolio manager at Argentiere Capital AG led the second session of the day at CBOE’s European Risk Management conference. The title of their discussion was Directional Options Trading Strategy and Position Management.
One of the interesting comments at the beginning of the presentation was that the range of customers using derivative strategies has never been greater. Many of these managers are using options to implement a directional outlook.


OIC’s​​ Investor Education Day is Coming to Chicago October 11​ (Free Event)
Investor Education Day brings together four industry pros, two tracks and a full day of intensive options learning to help you build a rock-solid investment portfolio. It’s a great opportunity to meet fellow investors, swap ideas and get your options questions answered.
– Basic and Advanced tracks
– October 11, 2014 – Chicago, IL

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