JLN Options: Nothing overtly bullish about today, which is bullish; VIX Futures at 2 A.M. Finally a Reality as CBOE Extends; Is the VIX broken?

Jun 23, 2014

Lead Stories

Nothing overtly bullish about today, which is bullish
Rod David – Futures Magazine
Active or passive, regardless, this morning’s action certainly did not have a bullish bias. Price dipped and remained dipped. WedEX is irrelevant at this point, and seems to have been irrelevant this morning. Was it even relevant Friday afternoon?
At this point, we do know that sellers have been trying all day to get something going. Chipping away at 1951.00 hasn’t produced a fresh low to 1948.75-1949.50 where lower prior highs could have launched a rally leg. And now the bias environment is starting to lapse, so a break higher is running out of time.

VIX Futures at 2 A.M. Finally a Reality as CBOE Extends
Callie Bost – Bloomberg
Investors who want to turn on their computers at 2 a.m. to trade volatility futures that have lost value this year are now free to do so.
CBOE Holdings Inc. yesterday extended trading hours on Chicago Board Options Exchange Volatility Index futures, making them available almost around the clock. The VIX (VIX), used by people to protect stock holdings from losses or speculate on market swings, has dropped 21 percent this year to 10.85, less than two points from a record low.

Is the VIX broken?
Jeff Greenblatt – Futures Magazine
The VIX is broken and other true classroom flubs and fluffs. I’m probably dating myself but that was a great comic strip when I was growing up in the New York newspapers in case you were wondering.
Last week several reputable stock market sources stated the VIX is a broken instrument. On the surface that appears to be true. But with some of these things you really have to dig below the surface to understand what it is telling us. I’m going to show you this chart and then you’ll realize how you really have to take the personalities on television with a big grain of salt. Okay, it’s time to tell the truth.

Options traders navigate quadruple witching day
Jeff Lagerquist – Business News Network
The investing world is no stranger to hyperbolic jargon. Beyond the bulls and bears, we find ourselves worrying about the manufacturing sector suffering from Dutch Disease or the market impact of the U.S. government falling of a Fiscal Cliff. Large animals and fictitious cliffs aside, one could be forgiven for questioning the validity of a quarterly occasion referred to as Quadruple Witching Day, and you may be right to do so.
“I don’t think the ‘witching’ is as much of an issue as it was when I was a young trader,” said Alan Knuckman, Chief Option Strategist at Bulls-eye Options and a 25 year veteran of the trading floor.

Is The Market Melting Up? – Weekly Market Commentary 6.23.14
Price Headley – CBOE Options Hub
The market may have made progress last week, but in so doing pushed itself back into an overbought condition.  Perhaps even more troubling is how all the indices are at or near key technical ceilings, right as the overbought situation developed.  Before anyone takes on anything new, a closer look at the potential risks are merited.

Stocks’ Steady Road Takes Its Toll
Chris Dieterich – The Wall Street Journal
Traders are betting that a placid stretch for stocks is on borrowed time, defying the trends that have made the wager a major money loser this year.
The CBOE Volatility Index, or VIX, an options-based measure of expected stock-market swings, last week hit its lowest level since 2007. The Dow Jones Industrial Average has gone 32 months without a 10% decline, the fifth-longest run on record. The S&P 500 hasn’t closed up or down 1% in 46 days, the longest stretch since 1995.

Total Silence On Wall Street
Myles Udland – Business Insider
Jonathan Krinsky, Chief Market Technician at MKM Partners, has alerted us to two tables that show just how ridiculously quiet it is on Wall Street. As Linette Lopez explained earlier, despite the soaring stock market, Wall Street is losing a fortune, because volatility and volume are so low.
In the last 20 years, only one time (!!) has the S&P 500 traded in a more narrow range than it did Friday and is doing today.

Peterffy’s Smart Plan for Flash Trades
Steven M. Sears – Barron’s
It is easy to lambast high-frequency trading as an automated pickpocketing machine that legally steals from investors. It is much harder to mitigate HFT’s market impact without getting lost in the cobweb of complex regulations that govern the nation’s exchanges and trading venues.
Thomas Peterffy, one of the fathers of electronic trading, has recommended a simple solution to the Securities and Exchange Commission that, if enacted, would curtail many of the unfair advantages now enjoyed by high-frequency trading firms.

Regulation and Enforcement

SROs Launch Study to Analyze Implementation Cost of the Consolidated Audit Trail
Press Release (BATS)
The national securities exchanges and FINRA (collectively, the self-regulatory organizations, or SROs) today began distributing a cost study questionnaire to gather information to assess and manage the financial impact of anticipated Consolidated Audit Trail (CAT) reporting requirements on the broker-dealer community. The SROs are obligated to submit to the Securities and Exchange Commission (SEC) a national market system (NMS) plan to create, implement and maintain a consolidated order tracking system, or the CAT. The SROs are currently working together to identify an optimal design for the CAT and this study is a key part of that deliberative process. The SROs have requested that recipients return the completed questionnaire by August 6, 2014.
http://jlne.ws/1woK2yE (PDF)

House Resists S.E.C.’s Insider Trading Inquiry
Peter J. Henning  – NY Times
Members of Congress certainly like to talk the talk, but when it comes to insider trading there seems to be little interest in walking the walk by cooperating with an investigation into a possible leak of confidential information that allowed for lucrative trading.
In 2011, Congress was embarrassed by a “60 Minutes” report that highlighted well-timed trades by representatives and senators that appeared to be based on government information and questioned whether they were subject to the prohibition on insider trading.

U.S. futures broker ordered shut by regulator plans relaunch
Tom Polansek – Reuters
The owners of a U.S. futures brokerage that regulators have ordered to close for helping to misappropriate customer funds will open a new brokerage with the same leadership and staff, company executives said.
The National Futures Association (NFA), which is based in Chicago and funded by industry fees, on Friday ordered Vision Financial Markets to shut its brokerage within six months and pay a $1.5 million fine for “failure to observe high standards of commercial honor.”

Confessions of an insider trader on the eve of his prison sentence
Quentin Fottrell – MarketWatch
One-quarter of all mergers and acquisitions show some trading irregularity before earnings and mergers announcements, according to a new study by researchers at New York University and McGill University in Canada. Is that an exaggeration or an underestimation?
MarketWatch asked Scott London, 51, a former partner at global accounting firm KPMG who lives in Agoura Hills, Calif., and pleaded guilty to securities fraud in a high-profile case last year. “I believe that it’s rampant,” he says. “Trading information gets leaked all the time. It’s obvious when you look at the trading activity and price fluctuations before and after press releases.”


IDG’s Computerworld Names CME Group to List of Best Places to Work in Information Technology for 10th Consecutive Year
Press Release (CME Group)
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it has been selected by IDG’s Computerworld as a 2014 Best Place to Work in Information Technology (IT) honoree, one of 100 top organizations that provides IT employees with a stimulating work environment as well as great benefits and compensation.  This is the 10th year in a row that the company has been named to this list, and once again CME Group is the only financial exchange company to receive the honor.  The recognition is part of the publication’s 21st annual Best Places to Work in IT survey, which was published in the June 23 issue and is available online at computerworld.com.

OptionsCity Supports Transition of NYSE Liffe US Products to ICE
Press Release (OptionsCity)
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that the firm is offering customers immediate access to Liffe US products following their transition to Intercontinental Exchange’s futures exchanges and clearing houses.

Options expands into Global Capital markets
Nick Booth – Datacenter Dynamics
Private financial cloud provider Options has expanded its presence in the global capital markets by putting its hosting platform into the NYSE (New York Stock Exchange), Arca, Arca Options and Amex Options exchange colocation facility in Mahwah, New Jersey.
The new placement means Options clients can use exchange colocation services through a single provider for every equity and options market in the United States.

Intercontinental Exchange Agrees to Sell NYFIX and Metabit to ULLINK
Press Release (ICE)
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that it has signed a definitive agreement with ULLINK, a provider of electronic trading and connectivity solutions to the financial community, for the combined sale of NYFIX and Metabit, both units of NYSE Technologies. The transaction, which is subject to regulatory approval, is expected to close in the third quarter of 2014. The terms of the transaction were not disclosed.


Getting Creative in a Low-Volatility Market
Is it worth it to walk the high-wire?
Adam Warner – Schaeffer’s Investment Research
With the CBOE Volatility Index (VIX) hovering in the 10’s, and realized volatility sometimes less than half that, what’s one to do in options right now?
In theory, we’d naturally like to lock in that “cheap” volatility and just wait for the inevitable spike. But as we point out over and over again, it’s just not that simple. If you’re new to this story, here’s the nickel version: You can’t actually buy 10 volatility for any length of time in a VIX product, and if you buy actual S&P 500 Index (SPX) options at volatility here, you’re actually overpaying relative to backwards-looking realized volatility.

Options Education

VIX: 7 Things You Need to Know
Kevin Cook – Zacks
Many traders, both novice and professional, like to opine on the current levels of the VIX, the CBOE Volatility Index, as signaling extreme market complacency and thus the cue for a market decline of some magnitude.
Unfortunately, the VIX is a sufficiently complicated mathematical animal that most of those offering opinions don’t really know what they are talking about. After you read this “must-know” stuff about the VIX, you will know more than most of them and be able to slice through or simply ignore their nonsense.


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