JLN Options: NYMEX traders allege big firms manipulated Brent oil prices; Twitter Options Are Coming – But Not ‘Till Next Week (?); Vol of VIX Near Historic Lows

Nov 7, 2013

Lead Stories

NYMEX traders allege big firms manipulated Brent oil prices
Claire Milhench – Reuters
Four NYMEX traders have alleged that the North Sea Brent crude oil market has been manipulated by oil majors and trading houses since at least 2002, in a class action they brought in the wake of a wide ranging European Commission inquiry.

Twitter Options Are Coming – But Not ‘Till Next Week (?)
Marty Kearney – CBOE
We saw several announcements about Twitter (TWTR) options being listed a week from Friday, November 15th.  While that may be the date for options being listed at CBOE and other exchanges, we thought we’d explain to you about the listing process for options.

Videocast: VIX reverses higher

Vol of VIX Near Historic Lows
Mark Sebastian – The Options Insider
Despite upcoming taper talk,  an upcoming employment report, more earnings coming up, and the SPX near an all time high, traders, it appears are not using derivatives to hedge.  VIX option prices,  the hedge for many portfolio managers and an indicator of how hot the variance swap market is, are at their lowest prices in two years.

Currency Traders Bemoan Slump Squeezing Banks
David Goodman and Lucy Meakin – BloombergBusinessweek
…Frankfurt-based Deutsche Bank, Germany’s biggest lender, said “unfavorable movements in global exchange rates” contributed to a 94 percent drop in earnings when reporting its third-quarter results last month. UBS AG (UBSN), the fourth-biggest currency trader, said the same day that foreign-exchange revenue declined, mainly in “the spot and options businesses.”

Are Central Banks the Only Market Catalyst? [Video]
In today’s “Options Update,” Bloomberg’s Olivia Sterns and Michael Palmer of Group One Trading examine the factors impacting markets and whether we are settling into a trading range in “On The Markets.” They speak on Bloomberg Television’s “Lunch Money.”

Rise of the Machines: How High Frequency Trading Affects Markets
Adam Warner – Schaeffer’s Investment Research
I’m generally against high frequency trading (HFT), or at least the unlevel playing field that it affords its practitioners. But I’m not so dogmatic that I can’t be swayed — at least, a little. This academic paper via the European Central Bank takes a more positive viewpoint of HFT, at least in regards to the angle that it provides market liquidity.


Nasdaq to Quote Structured Note Prices as SEC Urges Transparency
Kevin Dugan – Bloomberg
U.S. investors will be able to shop for structured-note deals for the first time in the $40-billion-a-year market as Nasdaq OMX Group Inc. is set to publish daily values of the securities.

CME Spends $30 Million a Year on Open-Outcry Trading
Andrew Harris – Bloomberg
CME Group Inc. (CME) spends about $30 million a year to maintain traditional open-outcry floor trading at the Chicago Board of Trade building, the company’s chief operating officer testified.
**That comes out to roughly $120,000/trading day.  Seems rather expensive.  I wonder how they are calculating that. -JB

NYSE Euronext Announces Trading Volumes for October 2013
Press Release (NYSE)
NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for October 2013. Global derivatives average daily volume (“ADV”) of 6.5 million contracts, excluding Bclear in October 2013 increased 1.3% compared to October 2012, but decreased 1.3% from September 2013. U.S. equity options volumes in October 2013 decreased 2.9% compared to October 2012, but increased 7.7% sequentially. ADV in U.S. cash equities declined 4.8% year-over-year and decreased 3.5% month-over-month. European cash equities ADV in October 2013 increased 8.1% compared to October 2012 and increased 3.0% from September 2013 levels.

Regulation and Enforcement

CFTC proposes ‘unassailable’ position limits rule
Alexander Osipovich, Peter Madigan – Risk.net
The US Commodity Futures Trading Commission (CFTC) has re-proposed a rule to impose speculative position limits on 28 physical commodities and their economically equivalent futures, options and swap contracts, 13 months after the agency’s previous attempt was rejected by a federal judge.

SEC’s Gallagher calls for exchanges to list small start-ups
Sarah N. Lynch – Reuters
A top U.S. regulator on Wednesday called for the creation of new “venture exchanges” that would be exempt from certain costly regulatory rules so that small start-ups could more easily list and raise capital.

A High-Speed Trader Gets a Ticket
Matthew Philips – BloombergBusinessweek
In what may be the opening salvo in its war with high-frequency traders, the Commodity Futures Trading Commission just took aim at the 1,000-pound gorilla in the room. In a complaint (pdf) filed Wednesday, the CFTC charged DRW Investments, one of Chicago’s biggest high-frequency trading firms (and among the biggest in the world), with conducting a manipulative trading scheme that netted it a profit of at least $20 million in 2011.

AlphaMetrix denies wrongdoing in CFTC lawsuit
Michael McFarlin – Futures Magazine
As AlphaMetrix closes its trading operations, the Commodity Futures Trading Commission filed charges against the firm earlier this week alleging it had violated the Commodity Exchange Act. AlphaMetrix now is denying those charges as it cooperates with the Court.

Did CFTC Cherry Pick Actions to Justify Rule?
Dan Collins – Dan Collins Report
There has been some interesting activity on the regulatory front this past year particularly as it involved enforcement actions while the Commodity Futures Trading Commission (CFTC) has battled the industry over its reinterpretation of the residual interest rule.


Single-stock futures alternative to section 871(m) withholding
Nicolas Billeaud – Risk.net
Nicolas Billeaud, head of portfolio finance solutions at Light Horse Market Solutions, says single-stock futures are set to become the only tax-efficient alternative to counteract US dividend tax withholding under the Hire Act

Options Education

Picturing Option Profits – Part 1
Russ Allen – The Options Insider
I often use option payoff graphs to illustrate these articles. These are also known as risk graphs or position charts. All the terms mean the same thing – graphing the profit or loss of an option position versus the price of the underlying asset.

The Essence of Low Risk Trading
Gabe Velazquez – The Options Insider
A common perception among the general retail investing and trading public is that in order to garner large profits you must take on big risk. So where does this view come from? Who perpetuates it? And is it necessarily true?


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Past Options Newsletters

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Seeing red: tricky times in the markets

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