JLN Options: MagicJack Options Trade Hits Jackpot, But Raises Questions; Sprecher of ICE Says Banning Maker-Taker Would Simplify Trading; Separating VIX fact from fiction

Feb 12, 2014

Observations and Insights

Slicing up the pie
Henry Schwartz – President, Trade Alert

Exchange proliferation has been a hot topic ever since the ISE shook things up at the turn of the last century, boldly challenging the status quo of four member-owned exchanges that had controlled the US market for decades.  Today’s market landscape barely resembles that of the 1990s, with a dozen options exchanges now competing for order flow, and benefits in terms of innovation and efficiency that must be weighed against the cost and complexity involved in transacting across such a fragmented market.

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Repository Story: Jonathan Thursby Discusses CME Group’s SDR Services
The Dodd-Frank Act in the U.S. and EMIR in Europe introduced new data reporting requirements. Exchanges like CME Group have long been experts in processing and disseminating data to market participants. But regulatory reporting of swap data brings its own challenges. John Lothian News Editor-at-Large Doug Ashburn spoke with Jonathan Thursby, executive director and chief operating officer of data repository services at CME Group, about its repositories in the U.S. and Europe, and their philosophy and approach to repository services.

Watch the video »

Lead Stories

MagicJack Options Trade Hits Jackpot, But Raises Questions
Kaitlyn Kiernan – The Wall Street Journal
A purchase of MagicJack VocalTec Ltd. options is poised to rake in a more than twofold gain after the stock soared this week.
Shares of the voice over Internet wireless communications provider surged 18% Monday after hedge-fund manager Whitney Tilson touted the stock late Friday in a newsletter. Comparing the stock with a big winning investment he made in Netflix Inc., NFLX -1.08% Mr. Tilson argued that magicJack shares could rise tenfold from a price last week of under $14.
** Trading first and touting second is not against the rules, however the ‘spoofing’ observed here could be a problem. -HS

Sprecher of ICE Says Banning Maker-Taker Would Simplify Trading
Matthew Leising and Sam Mamudi – Bloomberg
Jeff Sprecher, whose purchase of NYSE Euronext made his IntercontinentalExchange Group Inc. the biggest owner of U.S. stock markets, said banning the pricing system that prevails on exchanges would simplify them.
** Is complexity the main problem facing US securities markets?  -HS

Separating VIX fact from fiction
Chris McKhann – optionMONSTER
When the market sells off and the CBOE Volatility Index surges, the so-called experts come out of the woodwork to pontificate about the VIX and what it means. But much of what they say isn’t necessarily accurate, and some of it is downright wrong.

Doing What It Says On The Tin: The Value Of Volatility ETPs
Jared Woodard – ValueWalk
Portfolio hedges don’t come cheap, but we shouldn’t confuse those costs with the vehicles that make hedging possible.
Volatility has been written about as an asset class at least since the early 2000s, but not until VIX futures and exchange-traded products (ETPs) attracted substantial volume late in the decade did volatility become a tradable asset for investors who weren’t willing or able to trade options.

Dealers tempt capital markets with longevity risk transfer evolution
Clive Davidson – Risk Magazine
Some believe that the major obstacles holding back the capital markets from investing in longevity risk have finally been overcome, and this year could see a step change in the volume of deals done and a secondary market in risk transfer instruments emerge. The underlying trends point to a huge market in longevity risk, but many remain cautious about how quickly the potential will be realised.

Westpac to tap into RMB product demand with new China drive
Justin Lee – Risk Magazine
Increasing client interest to settle trade flows in RMB is a key reason Westpac has obtained a general derivatives licence from the China Banking Regulatory Commission (CBRC), which enables the bank to offer derivative products onshore in China.

US dark trading could stall despite 2013 high
The Trade
Market share for dark pools trading US equities was higher in 2013 than any prior year, but a slowing of growth could lead to a contraction, research compiled by broker Rosenblatt Securities has found.

Become Familiar With Stock Market Volatility
Michael Kling – CNNMoney
Stock market volatility may be a constant for quite some time.
Just look at the Chicago Board Options Exchange Volatility Index (VIX), which has increased almost 15 percent this year, and the CNNMoney Fear and Greed Index, which has been in the Extreme Fear range for more than a week.

Leveraged ETFs not just for day traders anymore
Ashley Lau – Reuters
Leveraged exchange-traded funds, originally viewed as tools for fast-moving day traders, are showing up more frequently as buy-and-hold investments in Mom and Pop portfolios, thanks to the advisers who are putting them there.

Why Bitcoin’s Volatility Problem May Soon Be Solved
Ryan Galt – CoinDesk
Just weeks ago, media outlets like Bloomberg and TechCrunch were all but declaring an end to bitcoin’s price volatility.
Posts like “Bitcoin’s Emerging Price Stability” were widely circulated on the bitcoin forums, and research from Wall Street analysts like ConvergEx Group asserted that bitcoin was “on the road to stability”.
Then, overnight, all was quickly forgotten.

Coming Soon: Weekly Volatility Bets
Adam Warner – Schaeffer’s Investment Research
While we were sleeping and/or watching the recent VIX Pop and Drop, there were some developments in the tradable volatility front.
We’ve outsourced our Contango Technology to India!
** Short term VXST futures are start trading tomorrow on CFE, we’ll need a catchy name for the VXST to VIX spread. -HS

Traders looking to bet on volatility may move from options to Vix Futures [India]
Ram Sahgal – Economic Times
MUMBAI: Traders love volatility and will soon get a product to directly bet on instead of doing so indirectly through the options segment of capital markets. So, rather than retail investors, who confine themselves to familiar environs of the cash market, brokers believe it’s probably this market segment which stands to benefit most from introduction of Vix futures from February 26.

Videocast: VIX pits eye holiday

Majority of women investors would stay with financial advisor upon death of a spouse or partner, according to Russell Investments study
Press Release, Russell Investments
Contrary to a commonly cited industry belief that women are likely to leave their financial advisor after a spouse or partner’s death¹, a large majority of female investors—93% in the “Silent Generation” age group and 78% in the “Generation X” age group—indicated that they would stay with their current advisor, even after the death of a spouse or partner, according to What Really Matters to Women Investors, a new study from global asset manager Russell Investments.


BATS Global Markets in January: Direct Edge Merger Closes; Another New Monthly Record in Spain
BATS Global Markets (BATS) today announces highlights for January, including the successful merger close with Direct Edge Holdings LLC and new monthly market share records in Europe  including 18.2% in Spain’s IBEX 35 and 9.0% in Depositary Receipts (FTSE RIOB)

Regulation and Enforcement

S.E.C.’s Review of Stock Trading Will See Some of Its Own Work
Steven M. Davidoff – Dealbook
There are now at least 58 stock exchanges in the United States, many of them dark pools where the trades can be made anonymously. With institutional investors claiming they are outgunned by high-frequency traders, and individual investors adrift in fragmented markets, it’s no wonder that Mary Jo White, the new head of the Securities and Exchange Commission, is moving to review and overhaul how stocks are traded. The issue is that the S.E.C. may have created the problem it is now hoping to solve.

Commodity groups launch next attack on U.S. position limits rule
Douwe Miedema – Reuters
A group of commodity firms came out against a new U.S. rule to curb market speculation in a letter on Monday, after banks successfully shot down an earlier version of the position limits rule in court.

Canada to Increase Regulation of Over-the-Counter Derivatives
Andrew Mayeda – Bloomberg
Canada will give banking regulators more power to oversee derivatives trading as part of a series of steps to shield the nation’s financial industry.
The government will amend the Bank Act to create “explicit regulation-making authority” over banks that trade standard derivatives, Finance Minister Jim Flaherty said in his budget released today in Ottawa.

MF Global Judge Says Corzine Must Face Some Suit Claims
Patricia Hurtado – Bloomberg
Jon Corzine, the former chairman of MF Global Holdings Ltd., must face some claims in a lawsuit filed by commodities customers over his role in the collapse of the brokerage company, a judge ruled.


High-Speed Stock Traders Turn to Laser Beams
Scott Patterson – The Wall Street Journal
As high-speed stock traders push to trade ever faster, their newest move involves harnessing a technology that U.S. military jets use to communicate as they soar across the sky: lasers.
In March, a small Chicago communications company plans to switch on an array of laser devices linking the New York Stock Exchange’s data center in Mahwah, N.J., with the Nasdaq Stock Market’s data center in another New Jersey community, Carteret.

Trading By Twitter: How to Avoid Gaming, Snark and Hijacked Tweets
Phil Albinus – Traders Magazine
Thomson Reuters Eikon now boasts news and Twitter sentiment analysis. Traders spoke with CTO Philip Brittan for his take on how traders can better rely on this game-changing social media platform and not crash like other buyside traders.
** CBOE is way ahead of the game here with 727K followers and 13K tweets . -HS


A Strategy for the Market’s Next Rally
Tom Aspray – Forbes
The action over the past week has certainly caused many of the prominent market bears to run for cover and Tuesday’s action added to their pain. Better-than-expected trade data overnight from China has pushed the European markets even higher in early trading on Wednesday.

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