Observations and Insights

Exchange CEO Series – Big Crowd: ISE’s Gary Katz says crowded options field to get larger

In the derivatives space, there has been a consolidation or a proliferation of exchanges, depending on how you see it.

While the number of futures exchanges in the US has shrunk to two major players, International Securities Exchange president and CEO Gary Katz has seen the opposite happen in the US options marketplace. And there is good reason for it.

Watch the video »

Lead Stories

S&P 500 Climbs to Record as Treasuries Fall, Oil Tumbles
Joseph Ciolli and Callie Bost – Bloomberg
The Standard & Poor’s 500 Index climbed to a record while Treasuries fell as data showed manufacturing expanded last month. Emerging-market stocks advanced with the euro and oil tumbled.

China Burns Speculators as Losses Reach $5.5 Billion: Currencies
Ye Xie and Kyoungwha Kim – BloombergBusinessweek
China is succeeding in making its currency less predictable. Investors are paying the price.
Clients of U.S. commercial banks have lost about $2 billion this year on $332 billion of options betting the yuan would appreciate, while Chinese companies lost $3.5 billion on $150 billion wagered on a benchmark forwards contract, according to data compiled by Morgan Stanley and the Depository Trust & Clearing Corp. in Washington.

US Options Show Up in More and More European Portfolios
TABB Forum
The demand for US listed options in Europe remains strong. But as European investors become more sophisticated in their use of options, demand increasingly is coming from traditional investment funds and private wealth managers. Here’s what’s driving the shifting demand.
http://jlne.ws/1jxdvRH (free subscription required)

PUT and BXY Index Both Rose 2.9% in 1st Quarter
Matt Moran – CBOE
One of the most frequent questions I hear is – how is the CBOE’s buy-write index doing year-to-date?
The charts below provide the percentage changes for 13 indexes in the first quarter of 2014.  Both the CBOE S&P 500 2% OTM BuyWrite Index (BXY) and the CBOE S&P 500 PutWrite Index (PUT) sell S&P 500 (SPX) index (options) every month, and both indexes rose 2.9% in the first quarter.

The Options Industry Council Announces March Options Volume Rose 14 Percent
OIC Press Release
The Options Industry Council (OIC) announced today that 355,570,399 total options contracts were traded in March, 14.12 percent more than March of last year when 311,565,300 contracts were exchanged.
Average daily volume was 16,931,924 contracts, up 8.69 percent compared to last March’s 15,578,265 contracts. Year-to-date volume stood at 1,090,299,568 contracts, 9.73 percent more than last year’s 993,580,233 contracts.

OCC Announces Cleared Contract Volume Increased 15% in March
Press Release
OCC announced today that total cleared contract volume in March reached 362,379,835 contracts, representing a 14 percent increase from March 2013. OCC’s year-to-date cleared contract volume is up 10 percent with 1,108,482,532 contracts in the first quarter of 2014.

Trading VIX: The Need-to-Know Edition
Adam Warner – Schaeffer’s Investment Research
Well, while you were watching your NCAA brackets go to dust, the Chicago Board Options Exchange (CBOE) was busy celebrating 10 years of CBOE Volatility Index (VIX) futures.
There were 120 financial professionals that attended. I wasn’t one of them — it’s a bit of a commute to get to Chicago from New Jersey (it took me a full 24 extra hours to get home the last time I tried it … really). But fortunately, the CBOE took some notes on the presentations. Included was a summary of comments by “Buzz” Gregory, a managing director at Goldman Sachs.

FBI Seeks Help From High-Frequency Traders to Find Abuses
Keri Geiger and Patricia Hurtado – Bloomberg
Federal agents are making an unusual public plea for the financial industry to bare its secrets.
The Federal Bureau of Investigation has openly solicited traders and stock-exchange workers to blow the whistle on possible front-running and manipulation via high-speed computers.


Vix Futures March Trading Volume Up 20% Over Year Ago
Press Release
The CBOE Futures Exchange, LLC (CFE(R) ) today reported that March 2014 average daily volume (ADV) and total monthly volume in futures on the CBOE Volatility Index(R) (VIX(R) Index) and total exchange-wide at CFE posted increases over year ago levels. In addition, new quarterly volume records were set in exchange-wide and VIX futures total volume and average daily volume during the first quarter of 2014.

CBOE Holdings Reports March Volume
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that March trading volume for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options ExchangeSM (C2SM) and futures contracts on CBOE Futures ExchangeSM (CFE)  totaled 107.86 million contracts. Average daily volume (ADV) was 5.14 million contracts, a 14-percent increase from March 2013 and a 14-percent decrease from February 2014.

Regulation and Enforcement

OTC derivatives regulators issue report to G20
The Over-the-Counter (OTC) Derivatives Regulators Group (ODRG) has issued a report that identifies the current list of remaining cross-border implementation issues related to global reform of OTC derivatives markets.

CME Group prevails in lawsuit over grain settlement rules
Tom Polansek – Reuters
CME Group Inc can keep in place rules that factor in electronic trades for settling end-of-day grain futures prices, an Illinois judge ruled on Monday following a legal challenge from veterans of the Chicago trading floor.


OptionsCity Named a Finalist in the 2014 Technical Analyst Awards
Press Release (OptionsCity)
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that it is a finalist in two categories of The 2014 Technical Analyst Awards. OptionsCity Freeway and Freeway Analytics are finalists for “Best Automated Trading Platform: Execution” and “Best Automated Trading Platform: Strategy Development,” respectively.


Fed Not Needed for Citi’s (Secret) Dividend
Steven M. Sears – Barron’s
Citigroup needs the Fed’s permission to boost its dividend. However, investors can increase Citigroup’s (ticker: C) measly four-cent annual dividend with two simple options trading strategies.

An Iron Condor to the Rescue
Russ Allen – MoneyShow.com
In my last two articles (calendars part 1 and part 2), I described strategies that work well when you expect the price of a stock with cheap options (low implied volatility) to stay in a range. The calendar strategy that I described there benefits from a lack of price movement, exploiting the difference between the rates of time decay of short-term options (fast) vs. longer-term ones (slow). Although not required, an increase in implied volatility (IV) after putting on the trade will increase its profitability.

How to Pick the Right Strike Price of an Option: Apple Case Study
Steve Smith – Minyanville
A reader asks the following:
I’ve heard that if you want to make a straight bullish or bearish bet on a stock using options, deep-in-the-money calls or puts are the way to go since the delta is near 100.
You seem to vastly prefer slightly out-of-the-money strikes. Can you talk about the logic behind this? And is this a long-standing preference, or is linked to current (low-volatility uptrend) market conditions?


The Options Industry Council Announces Investor Education Day In New York City April 12
Press Release (OIC)
The Options Industry Council (OIC) today announced that its second Investor Education Day (IED) for 2014 is taking place in New York City, NY on April 12.
Options are an ideal tool for a variety of investors and market conditions. The popular, and free, all day options education program is taught by experienced instructors from the various options exchanges and OIC professionals. This event is the second of two IED’s hosted by OIC this spring to help investors develop their knowledge and ability to responsibly trade options.


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