JLN Options: ICE postpones date of purchase of NYSE, Options Market Hit With Data Disruptions as VIX Lurches

Oct 30, 2013

Observations & Insight

Another Day, Another Glitch
John Lothian News

Actually, there were two unrelated glitches in the options market today, and one yesterday. First, ISE had a technical issue in a software configuration interrupted its price feed into OPRA this morning. Around this same time, the CBOE’s benchmark volatility index experienced erratic price gyrations on three separate occasions.

Yesterday’s data feed disruptions at NASDAQ, it turns out, resulted from a “human error” related to an operational function.

Coincidentally, yesterday morning WSJ’s Paul Vigna commented on how common such technical failures are, and how little impact they have on the markets. (See: “Exchange ‘Glitches’ Are a Feature of the System, Not a Bug”) But he also points out in a quote from Ophir Gottlieb of LiveVol that “One time is a random event, the second time it may be a coincidence and the third time is proof of weakness.”

Meanwhile, the Securities and Exchange Commission is losing patience. Last week, the SEC’s Louis Aguilar told an audience that he would like to impose a strict version of the “Regulation Systems Compliance and integrity” or Reg, SCI which was proposed in March, targeting exchanges, clearing agencies, self-regulatory bodies and dark pools. A Reuters story, http://jlne.ws/18DIeU4, said that SEC chair Mary Jo White would like to finalize a rule quickly.

Where this goes and what gets accomplished is still undecided. But more glitches in the meantime will keep it on the SEC’s radar.

Lead Stories

Options Market Hit With Data Disruptions as VIX Lurches
Nikolaj Gammeltoft and Lu Wang – Bloomberg
Data transmission was snarled in parts of the options market today as one of the biggest U.S. venues reported issues disseminating prices while the industry’s benchmark gauge swung erratically three times.
http://jlne.ws/16LzzEH
**JK – Word of the day is – snafu.

ISE Statement on OPRA Market Data Issue
Press release
The International Securities Exchange (ISE) experienced a technical issue that led to a disruption in its outbound market data feed to OPRA commencing at the market open through approximately 10:55 am. The root cause has been identified as a configuration error on the OPRA side that they applied specifically to the communication lines dedicated to receiving data from ISE and ISE Gemini. After implementing a temporary work-around to resolve the issue this morning, ISE and OPRA technology teams are collaborating to restore the proper configuration.
http://jlne.ws/1aTXKwr
**Nasdaq yesterday, OPRA today.

Exchange ‘Glitches’ Are a Feature of the System, Not a Bug
Wall Street Journal
Last spring, when Nasdaq’sNDAQ -0.79% trading system imploded on the morning that FacebookFB -0.78% went public, the high-profile gaff was seen by-and-large as a one-off. Since then, a series of “glitches” – including another one this morning – have interrupted trading, but markets have hardly reacted. The one-off has become a normal, if annoying, fact of life.
http://jlne.ws/19TfNW4

CBOE corrects erroneous quote on Volatility Index
Reuters
The Chicago Board Options Exchange said on Wednesday it has corrected a bad print on the CBOE Volatility Index that was related to a software issue.
The software issue caused the VIX to appear to have hit an intraday high of 21.26 earlier on Wednesday, a value some market participants questioned, given what had been a relatively quiet session for the stock market at that point.
http://jlne.ws/1aestU3

ICE postpones date of purchase of NYSE
Reuters
IntercontinentalExchange, a futures market operator, has postponed the closing date for acquiring NYSE Euronext. http://jlne.ws/HqE248

ISE Shuffles Data Execs, Soule Exits
Max Bowie – Waters
The International Securities Exchange has reorganized the team of executives responsible for the exchange’s market data, resulting in an expanded role for business development officer Jeanine Hightower and the departure of former head of market data Jeff Soule.
http://jlne.ws/17tqalZ

KCG Mulls Selling Stake in Combined BATS-Direct Edge
Jacob Bunge and Nathalie Tadena – Dow Jones
KCG Holdings Inc. KCG +1.52% intends to eventually sell the trading giant’s investment in electronic exchange operator BATS Global Markets Inc., KCG’s chief executive said Wednesday.
http://jlne.ws/17YbXrl

Chinese Financial Regulator Warming up to Commodity Options
Forex Magnates
China Securities Regulatory Commission LogoChina’s financial markets professionals have been facing an ongoing battle from policy makers as the government keeps a Chinese wall from much-needed reforms to compete with international markets. However, in a turn of events the financial watchdog, China Securities Regulatory Commission (CSRC), has hinted that it will be opening up commodity options trading.
http://jlne.ws/1craJwv

Dollar Rises as Fed Cites Economic Gains
Bloomberg
A measure of price swings among the currencies of Group of Seven nations has gained this week. The JPMorgan G7 Volatility Index rose to as high as 7.84 percent today after sliding on Oct. 28 to 7.48 percent, the lowest since Dec. 21. The 2013 average is 9.38 percent.
http://jlne.ws/HfvFbt

Volatility ETFs Tumble as Risk Levels Decline
Zacks
The American economy heaved a sigh of relief after it averted a costly debt default. While this sent the S&P 500 and Nasdaq into a rally, volatility ETFs took a backseat to other factors. Along with the debt deal, reduced possibility of tapering offered a wild card entry to equities but emerged as threats to the volatility ETFs.
http://jlne.ws/18DEsdn

Exchanges

Tough index derivatives trading hits Deutsche Börse
The Trade
Reduced demand for European index derivatives has impacted trading on Deutsche Börse’s Eurex exchange, according to the exchange operator’s Q3 report.
Trading in European equity index derivatives on Eurex fell by 20% in the third quarter compared to the same period last year, with 152 million contracts traded. Index derivatives is the highest volume product group on Eurex and has hit revenues for Deutsche Börse’s derivatives market, which is down 9% to €168.9 million.
http://jlne.ws/1ap76Fy

US-Total option open interest rises by 4.93 mln contracts
Reuters
A total of 16.4 million contracts changed hands in the U.S.-listed options market on Tuesday, resulting in net open interest growth of 2.52 million calls and 2.41 million puts, according to Trade Alert.
http://jlne.ws/1bDwdRC

Nasdaq says human error behind latest trading snafu
Reuters
Nasdaq OMX Group said human error left the U.S. exchange unable to transmit index values for nearly 45 minutes on Tuesday, leading to a temporary halt in options trading on some stock indexes.
http://jlne.ws/1h1lFCX

Technology

Exclusive: Platform Diversity Meets Binary Options as FXTrade Set To Offer Choice In Japan
Forex Magnates
Trading platform choices offered to clients of retail FX companies have become significantly more varied recently, with many brokers offering a selection alongside the ubiquitous MetaTrader 4. As with the onset of many a new development, adoption by a company is often followed by consumer acceptance, hence nowadays retail clients have come to expect variety.
http://jlne.ws/16mGtha

Strategy

ETFs for Added Income and Downside Protection
ETF Trends
Last weekend, I attended the “Invest Like A Monster” conference hosted by Options Monster in San Francisco. Some of the biggest and brightest names in the trading business were including, John and Pete Najarian, Guy Adami, Jeff Macke and Howard Lindzon of StockTwits.
http://jlne.ws/1aU2uSQ
**DA: Overview of several option-based ETFs. For an extra layer of fees, they can duplicate any options strategy you want.

Goldman Sachs: Buy calls ahead of analyst days in November
Reuters
Derivative strategists at Goldman Sachs Group advised investors to buy calls on a group of stocks ahead of the companies’ analyst days due to the potential for large stock moves on these events.
http://jlne.ws/17xNaOp
**DA: If you say so.

Income-Hungry Investors Turn to Stock Options
By Murray Coleman – Wall Street Journal
Investors on the hunt for yield are dipping into a stock-options strategy known as “covered-call writing.” But some advisers warn that such strategies aren’t a good substitute to earn extra income.
Low interest rates and skimpy bond payouts are leading more investors to dip into a strategy known as “covered-call writing.”
http://jlne.ws/16NfKrn

5 Rules Of The Road: How To Invest A Conservative Portfolio In The Current Environment
Forbes
Conservative investors with a healthy allocation to municipal bonds have done very well for themselves over the past two decades without having to grapple with the increasing volatility in the equity markets. Rates have remained low and demand has been high – why invest in equities when the average return for a 10 year Treasury Bond has been close to 10% over the past 30 years?
http://jlne.ws/1iv7IZu

Massive Facebook Options Trade Prints Ahead of Earnings
Henry Schwartz – TheStreet
Facebook (FB) will be in focus after the closing bell. The social media giant is due to release a quarterly profit report and analysts expect the company to post $0.19 per share for the quarter, up from $0.12 a year ago. The stock trades for $49.40, well off the highs of $54.84 seen a couple of weeks ago, but also 86.3% above the levels seen on July 24 before the stock gapped 29% higher on second quarter earnings
http://jlne.ws/1aILQZO

Option bears step into SPDR Oil & Production ETF Again
Reuters
Option bears are back in the SPDR S&P Oil and Gas Exploration & Production fund, which holds stocks like Sunoco Inc, EXCO Resources Inc and Range Resources Corp. Shares of the exchange-traded fund fell 1.34 percent to $70.95 on Wednesday. In the options market, one player sold 10,000 December $77 strike calls on the XOP to buy 10,000 December $65-$70 put spreads, paying 91 cents for the three-way trade, said WhatsTrading.com options strategist Frederic Ruffy.
http://jlne.ws/18DDga2

Investors: Low Volatility Doesn’t Equal Poor Performance
NASDAQ
Most investors have a distorted view of volatility and risk. It really isn’t their fault; their advisors have been taught to equate the two things and have stated this as a fact.
http://jlne.ws/HsO5pY<br

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