JLN Options: Investors 'out on a limb' over volatility, economists warn; Options Head to Zero as Time Warner, Sprint Bets Collapse; Why we saw a strong uptick in volatility as US markets fell

Aug 7, 2014

Lead Stories

Investors ‘out on a limb’ over volatility, economists warn
Julia Rampen, Investment Week (UK)
Fund managers have a “critical” imperative to warn clients about the risks of chasing yield despite low volatility, former monetary policymakers have warned.
Volatility in financial markets has dissipated since the financial crisis in 2008, with the VIX US equity volatility index recently falling to its lowest level since February 2007.

Options Head to Zero as Time Warner, Sprint Bets Collapse
By Callie Bost and Joseph Ciolli, Bloomberg
Options traders who were trying to profit off three proposed mergers saw the value of their bets vanish yesterday.
Fifteen different series of Time Warner Inc. (TWX) contracts lost more than 90 percent after 21st Century Fox Inc. withdrew its $75 billion takeover offer, sending the stock down 13 percent. The two options on Sprint Corp. (S) with the highest ownership were valued at a penny each after the company ended talks to acquire T-Mobile US Inc. (TMUS), while options betting that Walgreen Co. shares would rise as much as 18 percent by tomorrow were almost wiped out.

Why we saw a strong uptick in volatility as US markets fell
By Russ Koesterich, CFA – BlackRock, Market Realist
Last week, stocks suffered their worst one-day slide in six months while volatility reached the highest level since last spring.
However, as I write my latest weekly investment commentary, investors need to look outside the United States for opportunities. In particular, Asian stocks — both developed and emerging (EEM) — are intriguing, and have outperformed thanks in part to less challenged valuations.

Learning To Love Volatility
Rick Ferri, contributor, Forbes
There’s nothing like good market volatility. It makes me sleep well at night. Plunging prices, several days of bad news, it makes me all smiles. No, I’m not a masochist. I just know that weak-minded investors become nervous and sell in a roller-coaster market, and that gives me more opportunities to buy at cheap prices.

CNH Tracker-Banks launch new yuan FX options for companies in China
By Michelle Chen, Reuters
A batch of banks have started to launch new structured currency option products denominated in yuan for their corporate clients in China in the past week, after Beijing eased controls on yuan derivatives this month.
That will equip Chinese importers and exporters with more sophisticated financial instruments that will help them better hedge currency risk against the backdrop of a more volatile yuan this year.

IB Traders’ Insight
Andrew Wilkinson – Interactive Brokers
Geopolitical concerns mean that August trading activity continues where July went out – with a bang. The final two days of last month saw single name equity and index options volume surge to 17.1mm and 25.3mm contracts respectively and easily above the 16.3mm daily average for the month.

Spikes In The VIX: Harbinger Of A Coming Crash.. Or Not?
Adam Grimes, Seeking Alpha
Given last week’s volatile spikes, there has been a lot of talk about the VIX and volatility in general. This is a good time to take a deeper look at the VIX and make sure we understand what it is, what it measures, and what it might say about the future direction of stock prices.

The Bitcoin Derivative Boom Can Be A Mark Of The Cryptocurrency’s Coming of Age
Eric Mu – Forbes
The year of 2008 is remembered as the year of the global financial crisis, a crisis, fair or not, is often attributed to financial derivatives. Derivatives allow for phony accounting; they obscure the market and concentrate risk and allow megabanks to take on more debt! Such were the sentiment back in the day.

Volatility Complex Unfazed by Recent Unrest
We’re still probably another good scare away from an extreme in the volatility complex
by Adam Warner, Schaeffer’s Investment Research
As we try to put this week of shaky markets into perspective, we have to keep a few things in mind. None of us are used to unrest off levels this high. A 40-point dip in S&P 500 Index (SPX) futures sounds and feels pretty large, but it’s not much more than 2%. Going all the way back to two weeks ago, we’ve only dropped a shade over 4% from the record highs to yesterday’s lows.


CBOE Launches New S&P 500 End-Of-Month Options
Matt Moran – www.cboeoptionshub.com
Following up on an earlier CBOE Blog, CBOE recently launched the new, and long anticipated, S&P 500 End-of-Month Options. The introduction of these options stemmed from requests by asset managers who wanted an SPX option expiration that more precisely coincided with their end-of-month fund cycles and performance periods. To date the launch has been very well received, with a total of about 320,000 contracts traded during the month of July, at an approximate average daily volume of 16,800 contracts.

CBOE Risk Management Conference Returns To Europe September 3 – 5
Top Institutional Derivatives and Volatility Traders to Gather in Ireland for the 3rd Annual CBOE RMC Europe
CBOE Press Release
The Chicago Board Options Exchange (CBOE) and CBOE Futures Exchange (CFE) will host the CBOE Risk Management Conference (RMC) Europe, from September 3 through 5, 2014, at the Powerscourt Hotel in Enniskerry, County Wicklow, Ireland.  
The annual CBOE RMC is the premiere financial industry conference designed for institutional users of equity derivatives and volatility products.  Now in its 30th year in the U.S., this September’s event in Ireland marks the 3rd annual CBOE RMC Europe.

Intercontinental Exchange Reports Second Quarter 2014 Results
– Adjusted Diluted Continuing Operations EPS of $2.10
– Consolidated revenues, less transaction based expenses, of $750 million
– Adjusted Net Income from Continuing Operations Attributable to ICE of $243 million
ATLANTA–(BUSINESS WIRE)– Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today reported financial results for the second quarter of 2014. For the quarter ended June 30, 2014, consolidated net income attributable to ICE was $226 million on consolidated revenues less transaction-based expenses of $750 million. On a GAAP basis, diluted earnings per share (EPS) in the second quarter were $1.95.

Intercontinental Exchange Declares Quarterly Dividend of $0.65 Per Share
August 7, 2014
ATLANTA–(BUSINESS WIRE)– Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today a $0.65 per share dividend for the third quarter of 2014. The dividend is payable on September 30, 2014 to shareholders of record as of September 16, 2014. The ex-dividend date will be September 12, 2014.

How Many Exchanges Does The World Need?
Roger Aitken, Forbes
Among the many financial trading and IT conferences I have attended over the years – from TradeTech in Paris to Burgenstock in Montreux, Switzerland, and beyond – the question has always arisen as to how many stock and derivatives exchanges there would be in three, five or ten years time. Depending on who you canvassed the answer would always be different. Perhaps not that surprising I suppose. Some pundits suggested that in the end analysis there would be five or six global exchange groups.

NYSE Order Revamp Seen Worsening Conflicts That Sprecher Decried
Sam Mamudi – Bloomberg
The New York Stock Exchange, whose owner has been at the head of efforts to improve U.S. equity markets, is asking regulators for permission to alter order types in a way that is drawing criticism on Wall Street.
At issue is a proposal to modify the way brokers are permitted to deploy a particular instruction to trade stocks known as an intermarket sweep order. Under plans disclosed to NYSE Group Inc. customers yesterday, the exchange would allow such orders to rest on the venue and in some cases qualify for rebates when another broker trades against it.

CME Group Declares Dividend
CME Press Release via MarketWatch
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today declared a third-quarter dividend of $0.47 per share, payable September 25, 2014, to shareholders of record as of September 10, 2014.

Euronext posts modest Q2 revenue rise
Euronext today announced its results for the second quarter and for the first six months of 2014.


Intercontinental Exchange Acquires Trading Technology Patents
August 7, 2014
ATLANTA–(BUSINESS WIRE)– Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, announced today that it has acquired intellectual property rights that relate to computerized trading strategies. The acquired intellectual property rights include U.S. Patent Numbers 7,177,833; 7,251,629; 8,498,923; 8,478,687; 8,660,940; 8,732,048; 8,725,621 and various related pending U.S. Patent Applications. Terms of the transaction were not disclosed.


The Great Comeback of Volatility-Based Alpha-Generating Strategies
TABB Forum
Driven by regulatory change, the markets are undergoing a restructuring, contributing to unprecedented low volatility. But as new requirements drive up transactional costs and diminish liquidity, volatility will make a comeback.
For several years now, regulators on the both sides of Atlantic have been working hard to apply new restrictions to many different markets. The swaps market was arguably the first to undergo major changes. Other derivatives and most OTC markets, in general, followed.

Think Strategically About Income During Market Volatility
Adam Aloisi, Seeking Alpha
How an income investor should manage their portfolio during volatility.
Recent equity volatility should really come as no surprise to investors. Historically high valuations, a continuing stream of “bubblish” commentary and considerable disagreement over global macroeconomic conditions again seems to be coming to some sort of head. If we look back at the history of major market corrections, however, investors have been amply rewarded by stepping in and buying when fear envelops the market. When the next severe correction occurs, not just the dip we are currently experiencing, it will likely represent another robust opportunity for investors.

Investors Turn Bearish; Is this a Buy Signal?
The VIX spiked and polls show that fear is rampant, but any “buy-the-dip” opportunity may be short lived.
Michael Kahn, Barron’s
The stock market has been a scary place over the past week, and investors have changed their view from happy to quite fearful. In fact, the CNN Money greed/fear meter dipped to single digits this week on a scale of 1-100, signifying a “head for the hills” attitude.

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