Lead Stories

Jack Ma loses $1.4 billion in a day
Chris Isidore – CNN Money
Jack Ma had a no good, very bad day on Thursday, a $1.4 billion paper loss on the plunge in shares of Alibaba.
The Chinese e-commerce company reported disappointing sales that sent shares down nearly 9%. And founder and CEO Ma’s 6.3% stake in the company tumbled right along with them.
***JB: The really astonishing part is that a single individual can shrug off a $1.4 billion loss.

VIX Calls Most Shunned Since 2012 as Volatility Ignored
Callie Bost and Michelle Davis – Bloomberg
Even with stock swings nearly doubling since 2014 and U.S. equities poised for their worst month in a year, traders aren’t signaling too much concern.
Investors own about 2.4 million options betting on a rise in the Chicago Board Options Exchange Volatility Index, compared to about 1.6 million contracts wagering on a drop. That’s around the lowest ratio of calls to puts in more than two years, data compiled by Bloomberg show, indicating traders don’t anticipate an increase in market turbulence anytime soon.
***DA: Fading the panic has been a great strategy. It will work until it doesn’t.

A Detailed Look Into China’s Options Market (PTR)
Shobhit Seth – Investopedia
After more than two years of preparation and repeated delays in the launch, the free market socialist economy of China is expected to commence options trading on February 9, 2015. Anyone from the free market capital economy may be amazed to know that the world’s second-largest economy has not yet enabled options trading, but China believes in taking a cautious, step-by-step approach.
***DA: Options are viewed as a forbidden fruit that will soon be available to the masses, and we hear there will be an explosion in activity as new supply meets pent-up demand.

TDs, Safeties, and Gisele: Breaking Down the Big-Game Prop Bets
Adam Warner – Schaeffer’s Investment Research
Super Bowl Sunday is finally upon us! Which means, of course, wings, squares, and prop bets! I’m not really a big wings fan … but I love prop bets and I love square pools (though I’ve literally never won so much as a quarter in a square pool).
I can’t offer much in the way of “edge,” since they’re generally all drawn randomly. But if you happen to stumble on a squares “auction” — or someone interested in selling their draw — NumberFire has a guide to the value of each square. This brings us to prop bets!
***DA: I got 5 and 5 in my pool. That’s good, right?

India VIX Caps Best Monthly Gain Since April as Nifty Calls Drop
Santanu Chakraborty – Bloomberg
India’s benchmark gauge of protection against equity market swings posted its biggest monthly gain in nine months as stocks slid from a record high after 10 days of advances.

Regulation and Enforcement

The FTT – Finally a Reality
Rebecca Healey – TABB Forum
After years of wrangling, France and Austria appear to have broken the deadlock between the 11 ‘enhanced co-operation’ countries, and a compromise agreement has apparently been reached on a financial transaction tax. As of Jan. 1, 2016, all financial transactions, excluding primary market and bank loans, will be taxed if at least one of the parties is based in the EU. Is this finally it, or is it just more political posturing?
***DA: Here in the U.S., we need to watch this one to see if the Chicken Littles are proven right on FTTs or if the market can handle a small tax without imploding.

Newly Passed Bill May Impact Dodd-Frank Act
The National Law Review
The House of Representatives passed legislation that could loosen some of the restrictions imposed by Dodd-Frank on big banks. The bill, Promoting Job Creation and Reducing Small Businesses Burden Act, passed by a margin of 271-154, and contained the following measures:
Delay implementation of the “Volcker Rule” until 2019.
Exempt some private equity firms from registering with the Securities and Exchange Commission.
Loosen regulations on derivatives.
Permit some small, publicly traded companies to omit historical financial data from their financial filings.

Democratic lawmakers seek swaps data from JPMorgan, other banks
Two U.S. Democratic lawmakers on Thursday asked giant banks including JPMorgan Chase & Co (JPM.N) to explain how they will manage swaps trading activities after lawmakers weakened rules for those operations at the end of 2014.
***DA: And “heads I win, tails you lose” is not an acceptable answer.

FIA Says Eliminate Trade Through Rule and Locked Mkt Ban
John D’Antona Jr. – Traders Magazine
In a move to simplify trading in the equity markets, a group of traders has called for the elimination of the trade-through rule and the ban on locked and crossed markets.
In a new position paper, FIA Principal Traders Group called for a simpler market structure and gave regulators several suggestions on how to make equity trading easier. The paper called for a modernization of Reg NMS by eliminating the trade through rule (Rule 611) and the requirement to avoid displaying locked and crossed markets (Rule 610d).

EU rule could delay trading by 60 seconds
Clan Burke – Futures & Options World
The European Securities and Markets Authority could delay trade execution on European derivatives exchanges by up to 60 seconds as a result of proposals contained in the latest draft of Mifid II.
The proposals outlined in RTS 37 of Mifid II require pre-trade credit risk checks for every trade to ensure certainty of clearing.
***DA: They fought against a 500 millisecond rule in the MiFID draft. I can’t see how a 60-second throttle will survive.

Could Russia use high-frequency trading to crash the markets?
Eric Garcia – MarketWatch
The allegations were as explosive as they were seemingly ridiculous — that a wiretap intercepted by the Federal Bureau of Investigation overheard a Russian plot to learn more about high-frequency trading to cause instability in markets.
As part of allegations made against a Russian spy ring, the FBI says it heard of a plot to use journalists to ask the New York Stock Exchange about exchange-traded funds and “trading robots.”
***DA: Hmm. maybe those 60-second pre-trade credit checks are not such a bad idea.


NYSE Upgrades Its Technology Guts
Sam Mamudi – Bloomberg
The New York Stock Exchange and its siblings are poised to get a new engine.
The upgraded technology, dubbed Pillar, will run trading on all U.S. stock and options markets owned by Intercontinental Exchange Inc.’s NYSE Group. The NYSE Arca stock exchange will get it first, starting during the third quarter, followed by other markets including the New York Stock Exchange.


SPY: Embrace the Bear with Call Spreads on the S&P 500
Tyler Craig – InvestorPlace
Bears are roaming on Wall Street again. Their rampage kicked into high gear mid-week following the highly anticipated FOMC announcement. The selling pressure was enough to take the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) down a quick 2.7% from its Wednesday morning highs before a slow recovery through the rest of the day.
Of course, this latest downdraft has done little in improving the sloppy range that has developed in the SPY. Traders looking for ways to survive the ongoing see-saw behavior should look to the options market for answers.

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