JLN Options: Hedge Funds Turn Bearish on S&P 500 as VIX Advances; Buffett derivatives, feel the (credit) quality; No one told the VIX that S&Ps are at all-time highs

Feb 24, 2014

Lead Stories

Hedge Funds Turn Bearish on S&P 500 as VIX Advances
Nikolaj Gammeltoft and Nick Taborek – BloombergBusinessweek
Investors using Standard & Poor’s 500 Index futures turned bearish this month for the first time since September 2012, concerned that emerging-market turmoil and signs of slower growth will drag equities down.

Buffett derivatives, feel the (credit) quality
Dan McCrum – FT Alphaville
In our exploration so far of the very large put option contracts sold by Berkshire Hathaway, we have looked at the reasons to sell them (cheap float), the potential liabilities created and the mystery of Warren Buffett’s financial disclosure. Given what we thought we knew about the derivatives, it is strange that the accounting liability was not higher in the depths of the financial crisis.

No one told the VIX that S&Ps are at all-time highs
Andrew Wilkinson – Traders Magazine
Deals, more deals, higher prices for the latest deal or corporate willingness to step-up and make strategic acquisitions are all reasons helping deliver a stellar start to the week. For investors that means a swift return to confidence on Monday helping drive the S&P 500 index to a new record high.

VIX Futures Speculators Decrease Bearish Bets To Lowest Level Since July
Zachary Storella – Investing.com
Large traders and speculators sharply decreased their bearish bets in the VIX futures market last week to the lowest level since July, according to the latest data from the Commodity Futures Trading Commission (CFTC) released on Friday.

Launch of India Vix futures driven by institutional investor demand
Justin Lee – Risk Magazine
By launching India Vix futures (NVix) later this week, the National Stock Exchange of India (NSE) hopes to tap into domestic institutional investor demand for equity futures and options. However, concerns remain over the lack of market-makers for the product.

CFTC Data Shows Short Covering Lifts Speculators’ Silver Positioning; Gold Rises
Kitco News (via Forbes)
Short covering boosted large speculators’ net-long silver position in futures and options at the Comex division of the New York Mercantile Exchange, and at the same time these traders added to their gold holdings, according to the latest weekly commitments of traders data from the Commodity Futures Trading Commission.

Warren Buffett Says What Wall Street Doesn’t Want You To Hear
Mark Gongloff – The Huffington Post
Wall Street should really hate Warren Buffett.
America’s cuddliest billionaire is always treated like a rock star on CNBC or Wall Street or wherever else he appears to spread his folksy investing wisdom. But have you heard the stuff he actually says? It is pretty much in direct opposition to what CNBC and everybody else on Wall Street is trying to sell you.

Cargill Replaces Trader Amid Report of $100 Million Loss
Shruti Date Singh – BloombergBusinessweek
Cargill Inc. replaced a senior trader while disputing some details in a report that said the the largest closely held U.S. company lost at least $100 million in energy trading in recent weeks.

Investing Insights: Weathering The Numbers Storm
JJ Kinahan – Forbes
We saw some pretty ugly numbers from the government and in select earnings reports last week. What did they all have in common? Blame it on the weather.  In fact, it’s apparently so effective an excuse that the next time my wife is mad at me for something, that’s my go-to: Can’t help it. It was the weather.

Videocast: Cheap hedges in VIX

WSJ: Individual Investors Return to Stock Trading in Big Numbers
Dan Weil – MoneyNews
Retail investors are getting back to trading stocks in a major way, after many abandoned the market following its 2008-09 plunge.
Some experts are concerned that average investors are snapping up stocks just as the market may be reaching its top, The Wall Street Journal reports. The Standard & Poor’s 500 Index has soared 175 percent since March 2009.

No profit, no liquidity
Daniel P. Collins – Futures Magazine
A recent Bloomberg story highlighted how University of Chicago Professor Eric Budish is proposing a new electronic trading market structure for equities and derivatives. Budish notes in a paper published in December that,  “the continuous limit order book is a flawed market design and [we] propose that financial exchanges instead use frequent batch auctions: uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals, e.g., every 1 second.”

U.S. SEC reviewing if some high-speed traders should register
Sarah N. Lynch – Reuters
U.S. securities regulators are studying whether more proprietary high-speed trading firms should register as broker-dealers, which would subject them to greater oversight, a U.S. Securities and Exchange Commission official said on Friday.


CME Group updates market data fees
Press Release (via Futures Magazine)
In November, 2013, the CME Group announced changes to market data license agreements and schedules. The resulting increase in user fees significantly affect all NIBA members.
NIBA members voiced several concerns surrounding the changes and the Executive Board of Directors presented them to the exchange. On Feb. 14, 2014, the CME Group released an update to the market data policies. One of our major issues has been addressed: the definition of non-professional.

SEC Targets ‘Reverse Churning’ By Advisers
Daisy Maxey – The Wall Street Journal
Assets in fee-based advisory accounts at U.S. brokerages are growing, drawing greater scrutiny from regulators concerned that some financial advisers could misuse the accounts.
But there are steps brokers and advisory firms can take to ensure they don’t run afoul of regulators.

OCC’s Board of Directors Joins Board Leadership Organization NACD
Press Release (OCC)
OCC announced today its Board of Directors has become a Full Board Member of the National Association of Corporate Directors (NACD). This NACD membership demonstrates OCC’s commitment to the highest standards of corporate governance and board leadership.
Joining this diverse director community—with companies ranging from some of the biggest corporations to private entities and nonprofit organizations—OCC’s Board has increased its access to resources, and has the opportunity to gain proprietary insights about current and emerging governance issues. The Board also will be able to participate in NACD’s world-class director education programs.

Regulation and Enforcement

U.S. SEC plans tougher oversight of large asset managers
Sarah N. Lynch – Reuters
The U.S. Securities and Exchange Commission is developing a plan to step up its scrutiny of the country’s largest and riskiest asset managers, SEC Chair Mary Jo White said on Friday.
The extra focus on the sector comes as the new U.S. risk council is studying whether large asset managers such as Blackrock and Fidelity could pose systemic risks to the marketplace if they were to fail.

US SEC to press ahead with “tick size” study, Chair White says
Sarah N. Lynch – Reuters
The U.S. Securities and Exchange Commission will press ahead with a test program that would allow the stocks of small-cap companies to trade in wider increments, SEC Chair Mary Jo White announced Friday.


BATS Global Markets Named “Best Exchange Technology” at 2014 Market’s Choice Awards
Press Release (BATS)
BATS Global Markets, Inc. (BATS), a leading global
operator of securities markets, today announced the company was named “Best Exchange Technology” at the
2014 Market’s Choice Awards, as voted by industry participants and the editors of Markets Media magazine.
http://jlne.ws/1gwerSK (PDF)


Volatility Trading Digest – Could Go Either Way
The Options Insider
While we continue pounding on about a potential Head & Shoulder Top pattern, some are likely to be thinking it’s time to “give up on it already!” It would be stubbornly foolish not to acknowledge the probability diminished greatly last week. However, since there has not been a close above the potential Head perhaps all that happened last week was the possible formation of the missing right shoulder on Wednesday?

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