Investors rush back to options trade for protection
Debarati Roy and Trista Kelley – BloombergBusinessweek
Faced with signs of financial market stress, traders are rushing back to the options market.
They’re piling into exchange-traded products tied to stock volatility, with more than 60mn shares of the iPath S&P 500 VIX Short-Term Futures ETN changing hands on Thursday. That made the security that rises when equity swings increase the fourth-most active US exchange-traded fund. They’re also adding to bets on gold: bullish contracts on an ETF tracking the metal cost the most in a year relative to bearish ones.
VIX March Futures and Options Expiration on Tuesday, Not Wednesday
Vix and More
Just a quick reminder for those who may not be aware of it that the VIX futures and options expiration for March falls on next Tuesday, March 18th, not the typical Wednesday. This means that the VIX special opening quotation (SOQ) used to determine the March settlement price will be at the open on Tuesday and also the last trading day for the VIX March futures and options will be on Monday. With the speed at which things are developing in Ukraine and elsewhere, these 24 hours could turn out to be significant.
Unusual Activity Alert: Speculation Spurs VIX Call Spread Trade
The Options Insider
VIX in the midst of high speculation surrounding Russia a trader sold 62,000 of the VIX Mar 17/20 call spreads collecting .65. As the open interest on the 17’s is over 200,000 and the 20’s is over 300,000 it is hard to tell if the trader is opening or closing. Regardless, this points to the trader believing that any potential move higher in the VIX will be capped below a 17 settlement on Tuesday.
As Investors Look To Hedge Risk, ETN Product Raises Questions
Mark Melin – ValueWalk
Volatility based product, designed to protect investors during times of stock market declines, fails to replicate its tracking index.
Schaeffer’s Daily Option Blog
Sirius XM Holdings Inc. (SIRI) Overwhelmed by Option Bulls
Two huge block trades fuel a surge in Sirius XM Holdings Inc. options activity
by Alex Eppstein, Schaeffer’s Daily Option Blog
Sirius XM Holdings Inc. (NASDAQ:SIRI) is up 1.2% this morning to trade at $3.41, after Liberty Media Corp (NASDAQ:LMCA) announced last night that it no longer plans to buy the remaining 47% stake of the satellite radio firm that it doesn’t already control. This news has also been met with excitement in the options pits — particularly on the call side, where volume is running at a 50-fold mark-up to its average intraday pace.
Is a fear surge coming?
Lawrence Lewitinn – Yahoo Finance
The CBOE Volatility Index – The VIX – is up 20% in the past week and is currently trading near 17. That’s the highest it’s been in over a month.
The VIX measures the expectations of volatility in the benchmark S&P 500 index over the next month. Though a large move up in the markets raises volatility, the VIX is sometimes referred to as the “Fear Index” because a large move down also raises volatility
It’s ‘nap season’ for Wall Street
The Dow, the S&P 500 and the Nasdaq were all down about 2% this week. Most of the losses came on Thursday.
It seems that a sense of unease is returning to Wall Street lately. The VIX (VIX), a key gauge of volatility, was up 9% Friday and has surged 25% this week. And CNNMoney’s Fear and Greed Index, which looks at the VIX and six other indicators of market sentiment, has plunged into Fear mode. It was showing signs of Extreme Greed just a week ago.
Can U.S. Market Avoid A Serious Correction Again?
Sy Harding – Forbes
The Dow is down about 2% for the week, so minor that it’s hardly a blip on the charts. However, given the similar declines in global markets, the continuing dismal economic news out of China, and concerns about the Ukraine/Russia situation, the decline has gotten some attention.
Wall Street and the bulls say the pullback means nothing. At this point anyway, they are correct.
Should State Street Worry About ETF Outflows?
The U.S. equity market has been quite volatile in 2014, with the S&P 500 index sinking from around 1800 at the beginning of the year to below 1750 in early February, only to scale record highs late last week. While one would expect these changes in equity market sentiment to impact the demand for equity-based exchange traded funds (ETFs), the trend displayed by the country’s largest ETF – State Street STT +0.39%’s SPDR S&P 500 – tells a different story altogether.
CBOE plans nearly non-stop VIX futures trading this year -CEO
CBOE Holdings Inc , operator of the largest options exchange by trading volume, will implement nearly non-stop trading for futures on the its Volatility Index by the end of the year to capture more Asian trading, its chief executive said on Wednesday.
The index, also known as the VIX, is a widely followed gauge that measures investor sentiment.
Exchange CEOs say they are on high alert over cyber security
John McCrank – Reuters
Cyber security is emerging as one of the biggest threats for exchange operators as hackers become more sophisticated in their efforts to disrupt the global financial system, a group of exchange leaders told an industry conference.
US exchanges quickest out the blocks in 2014
Derivatives exchanges in the US have seen improved trading volumes throughout the first two months of this year, in contrast to the activity on the platforms of their European counterparts says Joe Parsons.
… three of the top five US exchanges grew during February, with the Chicago Board of Options Exchange (CBOE) the highest risers with 213m contracts traded, up by 37.2% year-on-year.
State to open derivatives market in 2016
Prime Minister Nguyen Tan Dung has approved a project to develop a State-controlled centralised derivatives market, which will begin operating in 2016 and follow international technical standards.
After 2016, derivatives allowed in exchanges will only be securities indices, futures and Government bond futures. Stock future contracts, government bond options, stock options, and securities indices option contracts will be allowed when the overall derivatives market is well-settled. In the long-term, this would extend to money and goods in futures, stocks and bond options.
Derivatives: Standardized Options Combinations Discontinued (25/14)
With the launch of Tailor Made Combinations (TMC) on March 17, 2014, NASDAQ OMX Derivatives Markets will stop creating standardized options combinations on the OMXS30 index as well as Ericsson B and Nokia shares. As of this date market participants will instead be able to create their own user-defined options combinations using the TMC functionality.
Regulation and Enforcement
US FX clearing mandate ‘imminent’
The first CFTC guidelines for the mandatory clearing of foreign exchange derivative contracts are in the final drafting stages and could come as soon as in the next six weeks, according to market participants and one of the agency’s commissioners.
The proposal, which would then be open for comment and subsequently phased in over several months and three stages, will set in motion a shift of the third set of derivative instruments to be mandated for central clearing via Dodd-Frank legislation. Interest rate swaps and credit default swaps have already been mandated for central clearing, while the FX mandate will comprise non-deliverable forwards and OTC FX options.
New Clearing Rules Vex Buyside Firms
Phil Albinus – Traders Magazine
With the passage of Dodd-Frank and other regulatory mandates, buyside firms have to focus on the clearing of over-the-counter derivatives. Combined with Dodd-Frank in the U.S. and Basel III and the European Markets Infrastructure Regulation in Europe, the challenges of clearing these trades are more complex than ever.
Ride the Gold Rally
Steven M. Sears – Barron’s
Global forces are aligned to keep pushing the price higher. With this options trade, investors can leverage decent gains into triple-digit returns.
Use Market Volatility To Your Advantage
By David Fabian, Nasdaq.com
The ides of March have brought additional volatility in the form of increasing price fluctuations in many of the major indices we track. Despite briefly hitting a new high in the SPDR S&P 500 ETF (SPY) this month, we have seen an increase in fear brought on by slowing growth data in China and political uncertainty in Ukraine.
This fear has put a bid under safe haven assets such as gold, treasuries, and even VIX futures. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) gained more than 7% this week as traders reduced their exposure to equities and hedged their bets with options. A rising VIX typically means that we are seeing a shift out of risk assets and into a more defensive posture.
Mini Options: A Useful Tool For Trading High-Priced Securities
Elvis Picardo – Investopedia
Mini options are option contracts where the underlying security is 10 shares of a stock or exchange-traded fund (ETF). This is the main difference between mini options and standard options, which have 100 shares as the underlying security.
Volatility Products in Chicago: The First Decade
The March Chicago QWAFAFEW meeting will survey the development and promise of volatility products on the tenth anniversary of their launch. The panelists will include volatility product creators, traders and users. The meeting will be held on Wednesday, March 26, from 5:00 to 7:00 p.m. at CBOE, 400 South LaSalle Street in Chicago.