JLN Options: NY probing alleged ‘ghosting’ of forex options; As crude oil swells, volatility-hungry traders turn to refined products; Insiders sending an ominous market signal

Nov 24, 2015

Observations & Insight

Adrienne Seaman, CME Group – Legal Aspects of a Career in Futures
MarketsWikiEducation.com

In 2008, Adrienne Seaman was looking for a change, for fear of getting “bored” in her job as a partner in a London law firm. As a lawyer with a degree in computer science, she was particularly well suited to join CME Group as it began its expansion in Europe. Two weeks after she joined, Lehman Brothers filed for bankruptcy, and the wheels of regulatory change were set in motion for the entire financial market. Today she has no worries about being bored.

Seaman asks, “who in the business will be worrying about law and regulation?” The answer, of course, is everyone. In this MarketsWiki Education talk, she offers tips not only for the would-be lawyers in the room, but also the 95 percent of people in the room who will not be lawyers, but will invariably need to deal with lawyers and legal issues throughout their professional careers.

Watch the video »

Lead Stories

NY probing alleged ‘ghosting’ of forex options
David Ingram – Reuters
New York Attorney General Eric Schneiderman’s office is investigating the posting of false bids and offers in the foreign exchange options market for emerging market currencies, a person familiar with the matter said on Monday.
reut.rs/1NbBfdR

As crude oil swells, volatility-hungry traders turn to refined products
Ron Bousso and Libby George – Reuters
In a world overflowing with oil, traders are looking to once-secondary markets such as gasoline and diesel for profits, as limited supplies and rapidly changing demand offer the volatility they thrive on.
In recent months, surprise shutdowns at relatively small refineries or extreme weather conditions have led to spikes in prices of gasoline and other products – allowing traders to cash in by filling the shortage or making a bet on paper price movements.
reut.rs/1NbCjOA

Insiders sending an ominous market signal
Jeff Cox – CNBC
The recent jump in stock prices has one important group of disbelievers.
Corporate insiders have been dumping shares at the highest pace in 4½ years, according to market data firm TrimTabs. The selling averaged $450 million a day in November, the highest since May 2011.
cnb.cx/1NbADVj

El Niño, La Niña, Volatility and Options
Erik Norland – CME Group
The current El Niño weather phenomenon could be among the strongest on record and is likely to reach peak intensity between November and January. Then, it rapidly diminishes. The impact on crops and their prices, however, could last a lot longer. Our previous article (El Niño: Corn Cares; Cows & Pigs Care; You Should Care, Too) shows that El Niños can raise crop prices, and their impact on agricultural markets can last one to two years after they started forming along the equator in the Pacific Ocean.
bit.ly/1QEfxRX

Exchanges

Eurex fixes Monday’s data glitch, launches probe
Alice Attwood – Futures & Options World
German futures giant Eurex said on Tuesday it has fixed a technical problem that caused erroneous data on Monday and launched a probe into the cause of the fault. A spokesperson for Deustche Boerse told FOW on Tuesday that the issue which hit the exchange’s T7 GUI on Monday, causing market data to be displayed incorrectly, has now been fixed, with the system now operating as normal. The exchange also said it is investigating the source of the issue. The outage affected users of the T7 GUI which make up only a small proportion of the exchange’s members because many customers use third party agreements and connections to the exchange.
bit.ly/1NbAWQa

Eurex Extends Trade Entry Service Capabilities to US Market Participants
Jeff Patterson – Finance Magnates
Eurex has extended the offering of its Trade Entry Services (TES) for all customers based in the United States, vastly expanding the network of its trading participants to a previously untapped market for the exchange, according to a Eurex statement.
bit.ly/1NbAUaX

Nadex Launches New Type of Market Order Promising Safer Trading
Avi Mizrahi – Finance Magnates
The North American Derivatives Exchange (Nadex) has introduced today a new order type called the Market Order with Protection (MOP). The offering is described as being just like a traditional order, allowing entrance to the market quickly at the current price, however with MOP the trader is protected from fills at prices too far from his target as it guarantees that the fill price will be within a defined range.
bit.ly/1lefj6X

TASE Launches Options on all TA 25 Index Shares
Press Release
The launch will enable undertaking diverse investment strategies and, for the first time, allow exposure through derivatives to stocks in the biomed, technology, real estate and construction, investment and holdings sectors.
prn.to/1NbBSUJ

BATS continues to build stronger market share (Subscription)
James Dornbrook – Kansas City Business Journal
BATS Global Markets has been a beehive of activity during the past few weeks, launching several new exchange-traded funds and a new options platform, and setting up its foreign currency exchange on a huge new platform.
bit.ly/1NbBdT3

Chi-X kicks off warrants offer with CBA and BHP
Shaun Drummond – Sydney Morning Herald
Self-managed super funds are the chief target for a range of new investment products Chi-X Australia is rolling out from Wednesday. The first of these – warrants – will initially allow investors to buy short or long positions in Commonwealth Bank and BHP Billiton. Other major stocks will be offered in future. Warrants are a derivative that allow a retail investor to borrow the stock of companies, to gain greater exposure to it. They are similar to equity options, but usually have terms measured in years rather than months. Mr Fildes said the warrants market has become negligible in Australia because of the monopoly power of Australian Securities Exchange operator ASX, and the high costs it charges for buying them.
bit.ly/1NbAYrj

Regulation & Enforcement

High-Speed Trading Would Face U.S. Scrutiny in New CFTC Proposal
Silla Brush – Bloomberg
The top U.S. derivatives regulator took its biggest step yet to increase surveillance of high-speed and other forms of computer-driven trading that have surged in recent years.
bloom.bg/1NbAotv

What’s Worse Than the SEC’s Revolving Door?
Barry Ritholtz – Bloomberg
Arthur Levitt is incensed. That doesn’t happen all that often. It takes a lot to make the level-headed, even serene, former Securities and Exchange Commission chairman angry. (Full disclosure: Levitt is a director of Bloomberg LP).
What has Levitt riled up these days is the deepening politicization of the agency he ran for eight years. I spoke with several other former SEC chairs from both parties, and each expressed similar concerns.
bv.ms/1jemGd3

Ex-Rabobank Traders Say Their Convictions Should Be Tossed
Patricia Hurtado – Bloomberg
Two ex-Rabobank Groep traders asked a U.S. court to throw out their convictions for rigging a key benchmark rate.
Anthony Allen and Anthony Conti were found guilty by a Manhattan federal jury this month of manipulating the London interbank offered rate. It was the first such criminal trial in the U.S.
bloom.bg/1NbAAJd

City Odds Capital Director Charged in $78 Million Pump and Dump Scheme
Avi Mizrahi – Finance Magnates
Last week the U.S Securities and Exchange Commission (SEC) filled fraud charges against several alleged perpetrators of a $78 million scheme involving the stock of Jammin Java (OTCQB:JAMN), an artisan coffee company that operates under the ‘Marley Coffee’ brand, leveraging the fame of reggae star Bob Marley.
bit.ly/1NbARvL

Strategy

Selling Options (Implied Volatility in Stocks and Futures) Going Into a Holiday: Can It Be That Easy?
Fred Oltarsh – Inside Futures
Many traders Sell Premium as a consistent trading methodology. Their logic is that most options either go out worthless or decay and can be bought back for less than their original price. This thinking, however, can ignore the damage that can be done by being short options. Options can grow in value at a tremendous rate and often gaps in the price of the underlying provide little opportunity to cover. As we get ready to celebrate Thanksgiving, it may be an opportunity to sell Implied Volatility before the extra decay sets in. The question is what to sell? In fact, that’s always the question.
bit.ly/1NbAGRe

HFT Masterclass – What is Spread Trading?
Lokesh Madan – Finance Magnates
Spread trading is the most commonly used high frequency trading (HFT) strategy, used by almost all liquid markets worldwide. We employ spread trading across multiple global venues and multiple asset classes, and we are now going to share our experience with you.
bit.ly/1NbAT6X

VIX Expiration: ‘Strategy’ Orders and HOSS
Adam Warner – Schaeffer’s Research
CBOE Volatility Index (VIX) expiration morning is an interesting time for options trading — that is, if you find an inordinate quantity of out-of-the-money (OOTM) put orders “interesting.” Here’s the deal. Lots of OOTM puts in the S&P 500 Index (SPX) trade on every VIX expiration. VIX futures and options cash settle based on the opening quotes on the SPX board the day of VIX expiration. Here’s a rundown of the series that went into the VIX November expiration: 132,916 December puts traded from the 1,750 strike down to the 975 strike.
bit.ly/1NbCglT

Paris Terrorist Attack Generated Another Market Dip
Bob Lang – CBOE Options Hub
After last week’s horrific Paris terrorist attack, many had expected markets to fall sharply when they opened for business the following Monday. Sure enough, when the futures opened for trading that Sunday evening we saw prices fall sharply, but they managed to recover and open positively. That led to a massive rally on that day and paced the markets for the rest of the week. In fact, the stock market had its best weekly performance of 2015, the SPX 500 rising more than 3.3%. With all the turmoil, uncertainty and expectation it was truly an amazing feat.
bit.ly/1NbCqKe

Education

3 Things to Know About Option Prices
Elizabeth Harrow – Schaeffer’s Research
As you may well be aware, it’s very common for option players to close out their trades without ever touching the underlying equity. In other words, they’re not looking to acquire or sell the underlying stock; these speculators simply want to capitalize on changes in the option’s price (known as “trading for premium”). Obviously, then, every derivatives trader worth his or her salt must be well-versed in the factors that influence an option’s price.
bit.ly/1lehmYy

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