JLN Options: Massive, unusual options volume on Friday confounds Wall Street; HSBC Bulls Bet on Stock Rebound Amid FCA Rigging Probe; Massive trade shows market fear and loathing

Aug 1, 2014

Observations and Insight

MarketsWiki Education Series, day 2
John Lothian and Doug Ashburn

Chris Edmonds, senior VP of financial markets for ICE, kicked off the day’s event by explaining the rise of central clearing, and how regulation has changed the OTC landscape. He said that, when he accepted the job at ICE in the days after the financial crisis, his mother wanted him to resign because he was in charge of clearing credit default swaps, which she heard were “weapons of mass destruction” according to Warren Buffett.

Edmonds was followed by another Chris, Chris Hehmeyer of HTG Capital Partners, who related the price risks we face on a daily basis as consumers to the price risks in the financial markets. It turns out today is the 37th anniversary of Hehmeyer starting at the Chicago Board of Trade as a runner, beginning his illustrious career which he outlined at the beginning of his presentation.

Next, Pat Kenny, VP of client relations for CQG, discusses his transition from the trading floor to an electronic platform. When asked by one of the interns about how he knew when it was time to move from trading to sales, he admitted that he was a bit of a “trading addict” and he needed a clean break. Kenny is particularly suited to relationship management, as much of the job requires him to entertain clients. “And who doesn’t like to entertain?”

Stefani Sandow, who has been working on Trading Technologies’ Nextrader platform redesign, traced her career as an architect to her work designing trading software. She once designed the tilework in the bathrooms at the Philadelphia airport. That was not the basis of the software design though. She did introduce me and the audience to Vitruvius, a Roman writer who said design should incorporate three principles – firmitas, utilitas, venustas, or rather should be solid, usable and delightful.

Mead Welles of Octagon Asset Management concluded the event with a fascinating story of how and why he created A Leg to Stand On, a charity to help kids around the world to get life changing help to stand, walk and live a normal life. 12,000 kids so far and counting. By the way, ALTSO’s fundraisers Rocktoberfest in Chicago will be held on October 8 and Hedge Fund Rocktoberfest in New York will be October 22 (get your tickets HERE), with bands from professionals in our industry playing.

It was another great day at the Summer Intern Education Series. Next Tuesday we have another great lineup and our biggest audience signed up, over 200 interns. Thank you again to all the firms sending interns and to our sponsors, BATS, CBOE, CME Group, Spot Trading, The IFM and Illinois Institute of Technology Stuart School of Business

Lead Stories

Massive, unusual options volume on Friday confounds Wall Street
David Gaffen and Angela Moon – Reuters
A barrage of bearish options contracts costing an estimated $8-million and nearly certain to expire worthless at the end of Friday’s session were purchased across multiple stocks Friday afternoon in a move that traders said made no sense.
After 1 p.m. EDT, more than 700,000 put options contracts were traded across a number of different stocks, including Priceline, Chipotle Mexican Grill and others, most of which expire at the end of Friday’s trading, according to Henry Schwartz, president of Trade Alert LLC.

HSBC Bulls Bet on Stock Rebound Amid FCA Rigging Probe
Anna Hirtenstein and Stephen Morris – Bloomberg
Bullish bets on HSBC Holdings Plc (5) are getting more popular on speculation the worst of its legal entanglements are over.
Calls to buy shares of Europe’s largest lender trade close to the highest level in almost three years relative to bearish puts, according to data compiled by Bloomberg on the Hong Kong-listed equities. The U.K. stock has rebounded 8.1 percent since hitting a 21-month low in July, posting its biggest monthly jump in a year. It slid 1.2 percent in London today.

Massive trade shows market fear and loathing
Alex Rosenberg – CNBC
The fear is back.
After a brutal Thursday session, S&P futures and VIX futures both pointed the way toward another tough day for the markets in early Friday trading ahead of the jobs report. And that must be welcome news for one major options player, who made a multimillion-dollar bet that the surge in volatility will continue.

Sponsored Content

Derivatives World China: The International Options Forum

16 September, Shangri-La, Dalian, China

With options set for launch in China this year, now is the time to find out how you can take advantage of this once in a lifetime opportunity to be there at the start of the market.

Join over 300 key figures from the global futures and options markets for high level discussions on the latest developments, opportunities, challenges and future direction of the options market in China and around the world.

To view the agenda, click HERE

To register for the event, click HERE


VIX Finally Getting Some Respect

Tim Biggam – Benzinga
After languishing near multi-year lows over the past several months, the CBOE Volatility Index (VIX) is breaking out to recent highs, trading up 22.5% on the day at 16.53.
This marks the largest one day jump in over a year for VIX, with the S&P 500 down over nearly 1.75 percent on the day.

VIX Futures Volume In Non-U.S.Trading Hours Sets New Daily Record (NASDAQ:CBOE)
Press Release (CBOE)
The CBOE Futures Exchange, LLC (CFE) today announced record trading volume in CBOE Volatility Index (VIX index) futures during non-U.S. trading hours, with an estimated 68,033 contracts changing hands. Today’s record surpasses the previous record in non-U.S. trading hours of 59,505 contracts set on July 10.
In July, volume in VIX futures outside of regular U.S. trading hours averaged more than 19,000 contracts per day, accounting for 9.9 percent of CFE’s total daily volume.

Stock Market Ends July in Dive, but Analysts Are Upbeat
Jeff Sommer – NY Times
The reasons for the losses on Thursday were not entirely clear. Disappointing earnings reports by a few major companies, Argentina’s apparent default on its debt and fears about the conflicts in Ukraine and the Middle East may all have been part of it. And relatively strong economic reports in the United States this week may have caused concern among traders that the Federal Reserve might tighten its expansive monetary policy.
But whatever the causes of the decline, it wasn’t entirely unexpected, and the reaction of several strategists was fairly upbeat.
Several assessed it this way: The market fell by 2 percent in one day? It’s about time.


CBOE to cut costs amid weak trading volumes
Chicago Tribune
CBOE Holdings Inc on Friday became the second exchange operator this week to say it will cut expenses in the face of declining trading volumes that are eating into profits.
Shares slid 1.2 percent after the owner of the Chicago Board Options Exchange reported a drop in second-quarter earnings and revenue.

ICE Said to Seek Mortgage Role Through Talks With Data Service
Matthew Leising, Jesse Hamilton and Jody Shenn – Bloomberg
Intercontinental Exchange Inc. (ICE), best known for energy trading and its control of the New York Stock Exchange, is engaged in negotiations that would give it a foothold in the $9.4 trillion U.S. mortgage market.
ICE is in early stage talks to form a partnership with Mortgage Electronic Registration Systems Inc., which documents the ownership and resale of about half of U.S. home loans, according to a person familiar with the matter, who asked to not be identified because the discussions are private.

OCC Announces Cleared Contract Volume Increased 10% in July
Press Release (OCC)
OCC announced today that total cleared contract volume reached 360,585,699 in July, a 10 percent increase from the July 2013 volume of 328,899,421 contracts. This represents the second highest July volume on record following the July 2008 volume of 366,783,829 contracts. OCC’s year-to-date cleared contract volume is up 0.26 percent from 2013 with 2,477,587,106 contracts.

The Options Industry Council Announces July Options Volume Increased 9 Percent
Press Release (OIC)
The Options Industry Council (OIC) announced today that 355,432,350 total options contracts traded in July, up 9.48 percent compared to last July when 324,651,203 contracts exchanged hands. This marks the second busiest July on record behind July 2008.
Average daily volume for the month also increased 9.48 percent with 16,156,016 contracts exchanged compared to last July’s 14,756,873 contracts. Year-to-date volume stood at 2,438,523,550, up 0.06 percent (1.5 million contracts) from the 2,436,987,381 contracts traded in the same period last year.

CBOE Holdings Reports July 2014 Trading Volume (NASDAQ:CBOE)
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that July 2014 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 108.89 million contracts. Average daily volume (ADV) was 4.95 million contracts, an 11-percent increase from July 2013 and a four-percent increase from June 2014.
CBOE Holdings’ year-to-date ADV was 5.18 million contracts, 12 percent ahead of the same period one year ago.
July was the second-most-active-month in total trading volume for futures on the CBOE Volatility Index (VIX index), up 48 percent from July 2013.

CBOE Futures Exchange Reports July 2014 Trading Volume (NASDAQ:CBOE)
Press Release (CBOE)
he CBOE Futures Exchange, LLC (CFE) today reported that July 2014 was the second-busiest month all-time for total trading volume exchange-wide at CFE and for futures on the CBOE Volatility Index (VIX Index).Average daily volume in VIX futures was 196,990 contracts during July, an increase of 48 percent from July 2013 and an increase of 13 percent from June 2014.  Total volume in VIX futures during July was 4.33 million contracts, up 48 percent from July 2013 and up 19 percent from June 2014. July’s total volume stands as the second most-active month all-time, trailing only the 4.4 million contracts in January 2014.  

CBOE Holdings Reports Second Quarter Results (NASDAQ:CBOE)
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported net income allocated to common stockholders of $42.6 million, or $0.50 per diluted share, for the second quarter of 2014, compared with $45.5 million, or $0.52 per diluted share, in the second quarter of 2013.  On an adjusted basis, net income allocated to common stockholders was $42.6 million, or $0.50 per diluted share, compared with $47.0 million, or $0.54 per diluted share, in the same period last year.  Operating revenue for the quarter was $143.9 million, down 5 percent compared with $150.8 million in the second quarter of 2013.

CME Group Inc. Reports Second-Quarter 2014 Financial Results
Press Release (CME Group)
CME Group Inc. (NASDAQ: CME) today reported revenues of $732 million and operating income of $412 million for the second quarter of 2014. Net income attributable to CME Group was $264 million and diluted earnings per share were $0.79. Excluding the items noted in the reconciliation, adjusted earnings per share would have been $0.771.

Regulation and Enforcement

U.S. financial risk council to review asset management
Douwe Miedema and Sarah N. Lynch – Reuters
The top U.S. regulatory panel tasked with policing the safety of the financial system said on Thursday it is launching a review of potential risks in the asset management industry.
But the Financial Stability Oversight Council was unlikely to designate any asset management firm as “systemically important” as part of the review, a source familiar with the council said, a tag that carries more regulatory scrutiny and oversight by the Federal Reserve.

ICE Benchmark Administration Launches Error Policy Market Consultation
Press Release (Intercontinental Exchange)
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced that ICE Benchmark Administration (IBA) is today launching a paper for consultation on a policy to provide transparency in the event that an error is discovered in the publication of ICE LIBOR.
IBA became the Administrator of ICE LIBOR on February 1, 2014 and has already implemented enhanced governance and surveillance to strengthen the integrity of the benchmark. In addition IBA is committed to minimising the risk of inaccuracies in the publication of ICE LIBOR and providing full transparency to stakeholders about any errors that may occur in calculating the rate.


First Look at the Binary Options and Bull Spreads Trading Nadex iPad App
Victor Golovtchenko – Forex Magnates
The only retail focused binary options trading exchange which is legally allowed to operate in the US has announced the release of an iPad app complimenting its mobile portfolio consisting of iPhone, Android and Windows Phone applications. As the amount of volumes executed through mobile devices is constantly rising this is a logical step for the Chicago based exchange. An increased flexibility for traders related to the way they can access the market is a big part of the growth trajectory of the regulated binary options market in the US.


John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Pin It on Pinterest

Share This Story