JLN Options: Massive VIX Trade Looks Like a Defensive Position; Nasdaq Briefly Halts Some Options Trading; Jobs React: Mr. Market’s Fed Narrative Reopens

Jan 10, 2014

Lead Stories

Massive VIX Trade Looks Like a Defensive Position
Henry Schwartz – The Street
A massive CBOE Volatility Index (VIX) call spread traded yesterday, with a buyer of the Feb 16-20 call spread 110,000x to open a new position. Since VIX calls are equivalent to SPX puts, this is a defensive position that appears to indicate much more concern about a pullback (and/or spike in volatility) than seen through much of 2013.

Nasdaq Briefly Halts Some Options Trading
Kaitlyn Kiernan – The Wall Street Journal
Nasdaq OMX Group Inc. briefly halted trading at one of its three options exchanges Friday due to a computer-server problem.
Trading in options on stocks with ticker symbols that begin with A through M, including heavily traded Apple Inc. and iShares Russell 2000 exchange-traded fund contracts, was halted on the Nasdaq Options Market for 18 minutes.

Jobs React: Mr. Market’s Fed Narrative Reopens
Brendan Conway – Barron’s
If the market was ready to throw a nutty over this report, you’d think it would show up in the various instruments tied to the CBOE Volatility Index. But it isn’t — those trading vehicles are dropping before the regular session.
**VIX closed today at 12.1…lowest since August 5. -JB

SABR symmetry
Hyukjae Park – Risk Magazine
Typical implementations of the stochastic alpha beta rho model involve asymptotic expansion approximations, which can generate inaccurate prices for long-dated options. But directly solving a pricing partial differential equation incurs high computational costs. Hyukjae Park shows how the model’s symmetry can be harnessed to reduce the complexity of the calculation and improve accuracy over expansions.
**When making money as an options trader became dependent on understanding math like this, I became a journalist. -DA

Exchange figures show tough environment for equity derivatives
John Bakie  – The Trade
Equity derivatives volumes, particularly options contracts, faltered in 2013 but some exchange groups registered increased activity in other products, pushing volume figures into positive territory.

Taking Stock of the S&P 500 Index
Michael Rawson – Morningstar
We review the S&P 500 Index fund options and discuss why the market may not be as overvalued as the CAPE suggests.

The World’s Biggest Hedge Fund Had a Pretty Bad Year
Kevin Roose – New York Magazine
Ray Dalio, the billionaire founder of hedge-fund behemoth Bridgewater Associates, had a great 2013 in terms of making YouTube videos and pissing off boaters in Connecticut. But investing? Not so hot.

The Year Starts With a Whimper … Now What?
Adam Warner – Schaeffer’s Investment Research
After a bang-up 2013, we’ve gotten off to a kind of mediocre start in 2014. The first five trading days of the year are gigantically crucial because … well, it’s a common talking point, so it has to be important, right?
I’m not so sure I’d get carried away.

How This Rogue Trader “Banged the Close” and Trashed His Firm
Scott E.D. Skyrm – Traders Magazine
In 2006, energy trader Brian Hunter was a star inside Amaranth Advisors, but a series of risky and ethically challenged trades brought the Connecticut hedge fund to its knees. In Scott E.D. Skyrm’s forthcoming book “Rogue Traders”—his follow-up to “The Money Noose”—the author, a former trader, takes us inside the world where betting on the weather can bring down the house. Here is an exclusive excerpt from the novel.
**Pride goes before a fall. -JB

Videocast: VIX action before data


License to Kill: The Complexity of Circuit Breakers
Marina Daras – Waters Technology
Much has been written about the August 1, 2012, Knight Capital debacle, the May 6, 2010, Flash Crash and the many other technical glitches that have disrupted the markets significantly over the past few years. But the amount of media attention devoted to such incidents doesn’t mean that the problems have been satisfactorily resolved.

Gold Flash Crash Caused By HFT Algorithm, Not Fat Finger
Mark Melin – ValueWalk
The recent flash crash in the gold market, first reported by ValueWalk on January 6, is now being attributed to an intentional high frequency trading (HFT) algorithm and not a “fat finger” mistake, according to Eric Hunsader, founder of market software firm Nanex LLC.  In this flash event the price of gold dropped over $30 in one second, a rare move indeed given the history of the gold market.  Hunsader estimates the value of the trades in question at $500 million.


Getting Ready for Earnings Season with Options
With earnings season having just begun, here’s an options strategy that’s perfect for a company about to report.
A straddle involves buying both a call and a put at the same strike price (at-the-money) at the same time.
With options, you buy a call if you expect the market to go up. And you buy a put if you expect the market to go down.

How the Big Guns Are Playing Gold Mining Stocks
Lewis Braham – Bloomberg
You could argue only fools would buy gold mining stocks today. If that’s the case, there may be a lot of idiot savants out there.

Options Education

Butterflies, Expiration, the Importance of Time
Wall Street Sector Selector
One of the major differences when learning to trade options as opposed to equity trading is the impact of time on the various trade instruments. 


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