It’s Getting Expensive to Be a Bear as Rules Pinch Options
Callie Bost – Bloomberg
More than just a casino for day traders, the options market is where institutions pay millions of dollars a day to hedge investments. Lately, amid a crackdown on risk-taking, they’ve been paying a little more.
Prices for Standard & Poor’s 500 Index put contracts, the options that act like insurance policies on stocks because they gain value when shares sink, have jumped this year to the highest levels on record relative to bullish calls, six-month data compiled by Bloomberg show. In one example, an option that appreciates if the market slides 10 percent by July has seen its cost shoot more than 120 percent above the corresponding bet on a rally. That’s twice the average spread since 2005.
***DA: Well, there is the issue of regulation-led drying up of liquidity pools, but there is also the fact that this seven-year bull run has gotten ahead of itself and plenty of folks out there are nervous that when this thing turns, it is going to turn big and fast.
Greed Never Felt So Good to Hong Kong Bulls Chasing Stock Gains
Ye Xie, Adam Haigh and Callie Bost – Bloomberg
Hong Kong options traders have never been so bullish on the city’s stock market after surging inflows from mainland China propelled the Hang Seng Index to the biggest rally worldwide last week.
Wagers on gains for the benchmark gauge increased to the most expensive level on record versus bearish ones Friday as the measure completed a 7.9 percent weekly advance, the most among national equity gauges. Surging demand for bullish contracts has been a past harbinger of gains, with the Hang Seng index posting an average one-month increase of 1.3 percent the five times since 2005 that calls became pricier than puts.
***DA: Of course, we all know what happens when everyone rushes to the same side of the boat.
How traders cashed in big on the GE deal
Maxwell Meyers – CNBC
Some savvy traders stand to make millions off Friday’s General Electric deal as a result of some very well-timed options trades.
On Thursday, when GE stock was trading around $25, traders starting aggressively buying the April 26-strike calls for around 33 cents each. All told, nearly 18,000 of those calls traded.
***DA: Settled at $28.51 Friday. Not bad for a day’s work.
Netflix experiences large option volume, as CEO’s compensation soars
Netflix (NASDAQ:NFLX) reportedly experienced an unusually large volume of option trading on Friday, as investors purchased nearly three times the amount of average call options, according to American Banking & Market News.
***DA: I don’t look at the stock often, but whenever I do it is $50 buck higher than the last time I looked.
Equity derivatives traders warm to OTC
Mike Kentz – Reuters
Equity derivatives traders have begun to warm once again to trading over-the-counter – rather than through the regulated exchanges that many flocked to following the chaos of the financial crisis.
Volumes across listed US futures, options and securities lending transactions declined by 6% in March over the previous year, following a 13% decrease in February and a 5% drop in January over 2014 levels, according to data from the Options Clearing Corporation.
Tabb Reports U.S. Listed Options Volume Hits 337m Contracts in March
John D’Antona Jr. – Traders Magazine Online News
March U.S. listed options volumes rebounded 11 percent in March after a lackluster February dotted with snow in the Northeast and Midwest and holidays.
U.S. listed options volumes came in at 337.0 million contracts for March, up from last month’s 302.5 million contracts, according to the Tabb Options Liquidity Matrix. During March, MIAX and BATS delivered triple digit volume growth rates compared to March 2014 levels, according the consultancy.
Bond Traders Brace Themselves for Another Flash Rally
Alexandra Scaggs and Liz McCormick – Bloomberg
Six months after an unexplained flash rally in Treasuries sent markets reeling, bond investors are bracing for it to happen again.
Prudential Investment Management is trading more futures because they’re both liquid and anonymous. State Street Corp. is making smaller bets. And Pioneer Investments is looking for returns in higher-quality securities that are easier to sell.
The Option Queen Newsletter
The problem that the FOMC faces is truly a difficult one. If interest rates are ratcheted higher, the US Dollar will become stronger which will impact our ability to sell our stuff to the globe. Reduced sales will lead to less production which, will lead to a leaner work-force. What is the solution? Keep interest rates where they are and hope that no bubbles appear in the economy or allow the US Dollar to appreciate and put up with increased unemployment? Both of these scenarios do nothing for the average worker who continues to struggle to pay bills and survive.
Retail investors’ interest in futures and options segment rising
Mumbai: Retail trading in equity derivatives has risen to the highest level since at least 2012, as heightened volatility in the markets in the March quarter prompted traders to place riskier bets for quick gains.
Average daily turnover for the retail category of investors in futures and options (F&O) amounted to Rs.1.04 trillion in the quarter ended 31 March on the National Stock Exchange (NSE), according to data from Motilal Oswal Financial Services Ltd. This is the highest retail turnover in this segment since the first quarter of 2012, from when comparable data was available. During the quarter ended 31 December, the average daily turnover for the retail segment was Rs.88,771 crore, suggesting that retail participation in derivatives has gained momentum.
Scary numbers at CBOE
Lynne Marek – Crain’s Chicago Business
The VIX “fear gauge” has scared up plenty of growth for the company that invented it in 1993—Chicago Board Options Exchange parent CBOE Holdings—but lately it’s been spooking investors.
Trading volume at the options exchange, the biggest in the U.S., dropped 15 percent in the first quarter, including a dramatic 50 percent plunge in VIX options trading in February and March, from a year earlier.
***JL: Markets go up and down, volumes ebb and flow. It is not scary, it is normal.
CBOE Holdings Reports March 2015 Trading Volume – Corrected
Press Release – CBOE
NOTE: In the news release, “CBOE Holdings Reports March 2015 Trading Volume,” issued April 1, 2015 by CBOE Holdings, Inc. over PR Newswire, the company advised PR Newswire that the table in the last section — “CBOE Holdings Average Revenue Per Contract” — contained an incorrect number. In the “Total Options Average Revenue Per Contract” line, the February 2015 figure has been changed from “$0.264” to “$0.283.” The complete, corrected release follows:
BATS Chi-X Europe and ICAP Announce New EFP Services
Press Release – BATS
BATS Chi-X Europe (BATS), Europe’s largest stock exchange, and ICAP, a leading markets operator, announce today new services which, when combined, will enable market participants to trade fully cleared equity index Exchange for Physical (EFP) transactions anonymously.
An EFP involves the simultaneous exchange between two parties of a futures position for a position in the underlying asset. EFPs are currently traded over-the-counter (OTC) with the futures leg of the transaction being exchange-traded and cleared, and the cash/physical leg settled on an OTC, bilateral basis.
Regulation & Enforcement
Incorrect date costs broker nearly $23M in liabilities
John Aidan Byrne – New York Post
A trading regulator found discount brokerage Interactive Broker liable for posting an incorrect date and awarded a New Jersey man a record $2.4 million in damages.
But that’s only a fraction of the $22.7 million he lost on a botched trade because of the bad information…
In June 2013, Cerisano was taking a huge position in VIX Futures that climbed as high as $200 million with leverage.
***JL: I am torn on this. On the one hand, IB displayed the wrong information on their site. However, anyone who is risking as much as this trader was should have multiple sources of information and double and triple check it. It is unfortunate, but a good example of someone who should be getting and paying for a higher level of service. You get what you pay for.
Substantial Goldman Data Transfer Prompted Code-Theft Probe
Christian Dolmetsch – Bloomberg
A Goldman Sachs Group Inc. managing director told a jury he began investigating possible theft of the company’s computer code after being alerted to data transfers of “reasonably substantial size.”
“We were pretty sure we had lost information and we wanted to know what we had lost,” Mark Freeman testified during the trial of Sergey Aleynikov, the former Goldman Sachs programmer accused of stealing the firm’s high-frequency trading code.
Boat eyes derivatives with new Mifid system
Luke Jeffs – Futures & Options World
Swedish firm said it will apply next year for approval to run new system.
Cinnober, the tech firm that runs the Boat reporting service, has said it will apply next year to the British regulator for approval to run a new category of reporting solution that will cover all asset classes including derivatives.
Euronext selects Horizon Software platform
Press Release via Automated Trader
Horizon Software has been selected by Euronext for monitoring and pricing derivatives instruments in real-time and to calculate and disseminate settlement prices on an intra-day basis.
Horizon Software provides a customised version of its trading platform. The volatility management tools will enable to permanently autofit volatilities, adjust them manually, price derivatives and set trading limits automatically for market participants. Euronext will use the volatility and pricing models available in the system to monitor options and futures in real-time. The platform embeds several models for pricing derivatives such as Black-Scholes, Garman-Kohlhagen, Binomial, Cox-Ross, PDE, Trinomial, and several volatility models such as Asymptotic Volatility and Dynamic Skew.
A Winning Options Strategy for Earnings Season
Steven M. Sears – Barron’s
Feel uneasy picking stocks because whippy oil and currency prices and choppy economic data are roiling equities? Fret not. Low volatility is the antidote to low conviction.
In fact, volatility is generally weak enough that options dealers are practically giving away lottery tickets at the start of earnings season.
Choppy Waters Ahead For Japanese Yen
Mike Zarembski – The Options Insider
The Japanese Yen has settled into a very narrow trading range after several periods of volatility over the past few years. The Japanese economy has vacillated between expansion and recession over the past several years. Japan’s GDP is growing again, although slowly, after the sharp recession in early 2014 induced by a sales tax increase in April 2014.
Why You Can’t Assume Mirror Price Results By Leveraged Long And Short ETFs
Peter F. Way – Seeking Alpha
The leveraged ETF, if now a bad buy, why isn’t the short ETF twin a good buy?
Probably because its price won’t go up the way you’d like, when you want it to.
Why won’t it?