Lead Stories

Mom and Pop Flock to Options Market
Kaitlyn Kiernan – The Wall Street Journal
Small investors stepped up their options trading last year, even as a steady bull market in stocks meant hedge funds and other big traders pulled back.
Retail investor trading volume rose 12% to a daily average of 3.9 million contracts in 2013, a TABB study released Tuesday said, after seeing a slight decline the prior year.

Earnings And Volatility, What Is Going On?
JJ Kinahan – Forbes
Uptrending volatility and mixed trading may persist in this holiday-shortened week as investors digest the next round of earnings reports. Indeed, with the CBOE Volatility Index (VIX), a sentiment gauge affectionately called the market’s “fear gauge,” at 12.5 and in the lower end of its one-year range, the risk of market complacency is growing.

Buffett Makes Millions Selling 500-to-1 Monkey-Linked Derivatives
Matt Levine – Bloomberg
Much as bankers are in the business of putting cheap funding to work, bloggers are in the business of putting cheap irony to work, and one of the cheapest of ironies has long been that Warren Buffett (1) has called derivatives “financial weapons of mass destruction” and (2) has been known to dabble in the occasional high-proof derivatives trade himself. Selling long-dated S&P 500 puts is perhaps the best-known example, though he’ll buy big chunks of bank warrants too if the situation calls for it.

VIX ETFs Starting To Get The Message
Wall Street Sector Selector
VIX ETFs rose slightly last week in acceptance of the fact that these markets are bound to go down sometime soon.

The Creation of Listed Options Among Top Chicago Innovations
Russell Rhoads – CBOE
The Creation of Listed Options Among Top Chicago Innovations
Over the weekend I was reading through the Chicago Tribune and came across an article by Phil Rosenthal titled – My own list of Chicago’s greatest innovations.  I assumed McDonald’s and the transistor radio (by Zenith) would make the list, but was curious what other innovations had come out of Chicago.  Let’s just say I beamed with pride when right there at number 9 was Modern options trading.

Big Bets on Power Cleared by Regulator
Gregory Meyer – The Financial Times
Speculators facing a clampdown in commodities markets have a new place to take big positions: electric power…
IntercontinentalExchange, or ICE, last Tuesday raised limits on speculation for more than 170 electricity futures and options linked to markets from California to New England.

The VIX Remains at Worrisome Levels
Rick Pendergraft – Money News
During the past week, the CBOE Volatility Index dropped below the 12 level before closing above it for the week.
Last week’s dip below 12 was the fourth one in the last year. To see as many dips below 12 as we have seen in the past year, you would have to go back to the 2006-07 timeframe.

Banks Still Vulnerable Over Derivatives
Francesco Guerrera – The Wall Street Journal
You can’t judge a book by its cover, let alone a report by a bunch of banking regulators.
A perfect example came last week. Watchdogs from 10 European and North American countries released one of the most hard-hitting, and worrying, studies on the financial industry since the 2008 crisis. Their conclusion: Many large banks and their regulators are still unprepared to deal with troubles in the immense market for derivatives.
**Options are not a part of this but thought it was interesting. -JB


Eurex Exchange Plans To Launch ATX-based Futures and Options
Jeff Patterson – Forex Magnates
Eurex Exchange, one of the world’s leading forex and derivatives exchanges has announced an initiative to launch four new futures and options packages beginning February 10, 2014, based on the Austrian Traded Exchange (ATX) and an amalgamation of other Eastern European indices, according to a Eurex statement.

CBOE to extend US Vix trading to Asia hours
Aaron Woolner – Risk Magazine
The Chicago Board Options Exchange (CBOE) is planning to capitalise on Asian demand for volatility instruments by expanding the trading hours of its Vix index, representing the implied volatility of the S&P 500 index options, to meet the business hours of firms trading in the region’s time zones.

Why isn’t CME doing better?
Lynne Marek – Crain’s Chicago Business
CME Group Inc. is stuck between its past and future, dragged back by industry traditionalists as it struggles to expand a global electronic futures exchange.
CME is the world’s largest futures exchange. Yet management efforts to evolve beyond its Chicago trading roots and appeal to new customers often trigger a backlash from longtime shareholders and traders whose livelihoods are threatened by changes at the 166-year-old institution.

Trading on combined BATS-Direct Edge set for February
The Trade News
Trading on the combined BATS-Direct Edge US exchange will commence from 3 February after expected Securities and Exchange Commission (SEC) approval in January, sources close to the matter have said, with the group set to challenge the New York Stock Exchange’s dominance.

Derivatives trading on NSE volatility index gets nod
Business Standard
The Securities and Exchange Board of India (Sebi) may grant the National Stock Exchange (NSE) its long-pending demand of being allowed derivatives-based trading on the volatility index (VIX).

Regulation and Enforcement

CFTC Boosts Scrutiny of Swap-Data Rules to Help It Spot Whales
Silla Brush – Bloomberg
The U.S. Commodity Futures Trading Commission is moving to revamp oversight of swap-market data after a member said the agency’s information wouldn’t help detect a loss like JPMorgan Chase & Co. (JPM)’s London Whale trades.

CFTC exempts Nadex from some Dodd-Frank provisions
Press Release (via Futures Magazine)
In response to a request from the North American Derivatives Exchange, Inc. (Nadex), a registered derivatives clearing organization (DCO), the U.S. Commodity Futures Trading Commission’s (Commission) Division of Clearing and Risk (DCR), acting under delegated authority from the Commission, issued an exemptive letter that grants Nadex relief from certain provisions of the Commission’s regulations applicable to DCOs. DCR also issued an interpretative letter that addresses the applicability of certain regulatory provisions to Nadex.

Bats Said Poised to Escape SEC Fine for Botched March 2012 IPO
Sam Mamudi and Joshua Gallu – Bloomberg
U.S. regulators will recommend against fining Bats Global Markets Inc. for a computer error that prevented the exchange owner from completing its March 2012 initial public offering, according to three people familiar with the matter.

AlphaMetrix denies wrong-doing in court filing
Lynne Marek – Crain’s Chicago Business
AlphaMetrix Group LLC in a court filing denies wrongdoing in a case brought against it by the Commodity Futures Trading Commission and blames the regulators for short-circuiting its plan to pay customers $2.8 million in rebates they’re owed.


Buy Big Bank Stocks
Steven M. Sears – Barron’s
Investors should reap a solid profit with a simple options trade on the financial sector ETF, which owns JPMorgan, Citi, Goldman, and more.

The Super Bowl Indicator Is Set!
Adam Warner – Schaeffer’s Investment Research
The Super Bowl Indicator is a superstition that says that the stock market’s performance in a given year can be predicted based on the outcome of the Super Bowl of that year. It was “discovered” by Leonard Koppett in the ’70s when he realized that it had never been wrong, until that point.
**Probably not a strategy anyone should employ but thought it was fun. -JB

Options Education

Volatility Views 95: When the Crazies Emerge
Mark S. Longo – The Options Insider
I’d been looking at the CBOE’s Put-write vs. Buy-write strategy that rolls the ATM monthly options short. On the surface it appears the PW outperformed with less volatility over the last 25 years. It appears the PW outperforms over longer periods because any or all of the following:



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