JLN Options: Oil options volatility nears record low amid Iran deal; Amid Stock Calm, Investors Look to VIX for Volatility Bets; Corporate hedging demand drives growth in offshore RMB options market

Nov 25, 2013

Lead Stories

Oil options volatility nears record low amid Iran deal
Jeanine Prezioso – Reuters
The future volatility of already becalmed oil prices is looking even more muted following an historic deal between Iran and major nations that may ease years of tensions.

Amid Stock Calm, Investors Look to VIX for Volatility Bets
Kaitlyn Kiernan – The Wall Street Journal
Stock investors seem to be growing more comfortable with the outlook for Federal Reserve policy, but some options traders are betting that uncertainty and wider price swings will return ahead of the mid-December Fed rate-setting meeting.
After a period of calm in recent weeks, expectations of heightened volatility are leading to a pickup in options trading volume in the Chicago Board Options Exchange’s Volatility Index. Options traders are again setting up positions in contracts that would profit from a jump in the VIX.

Corporate hedging demand drives growth in offshore RMB options market
Justin Lee – Risk.net
 A rapid expansion in type and amount of RMB structures traded in 2013 signals how the Chinese currency is going mainstream. But dealers say the real test will come when the US starts to raise interest rates

Videocast: Buying May protection

Europe’s Financial Transaction Tax Faces Challenges, PwC Says
Nandini Sukumar – Bloomberg
Europe’s planned tax on financial transactions may fail to reduce market risks and could increase household costs, according to a PricewaterhouseCoopers LLP study commissioned by the financial industry.

Burned short sellers adjust as stocks keep rising
MoneyBeat, The Wall Street Journal (via Financial News)
About the only people gnashing their teeth are short sellers, the investors who make a living betting that stocks will fall in price rather than rise. Short-selling hedge funds are down nearly 15% from the start of this year through October, according to hedge-fund tracker HFR.

Bats Global Markets says options trading disrupted
Kansas City Star
Bats Global Markets Inc. said its U.S. options market isn’t able to trade certain contracts because of an unspecified “issue.”
**Unfortunately I have not been able to find any more info on this as of this writing.  -JB

Holding On for Tomorrow
It tales a cool head to invest. A firm’s decision to build up capacity or spend cash on research pays out tomorrow but must be paid for today. That makes investment returns uncertain, influenced by factors — from oil prices to politics — that firms cannot control. With rich-world investment rates looking anaemic, many wonder why big firms are hoarding cash rather than putting the money to work. According to new research, doubts about the future, some of them self-inflicted, are a likely cause.
**Interestingly they used options (in part) as part of their methodology to collect data for this study. -JB

Wall Street can cheer going into Thanksgiving Day
Angela Moon – Reuters
Wall Street set another record this week, and the rally that has taken the S&P 500 index nearly 30 percent higher for the year shows no sign of losing steam as Americans prepare to celebrate the Thanksgiving holiday.


CME Group hears complaints, may tweak planned fee hikes -broker
Tom Polansek – Reuters
CME Group Inc, the world’s largest futures exchange operator, may consider minor modifications to its plan to raise fees for traders in response to complaints from customers, a futures executive who met with company officials said on Friday.

Eric W. Noll to Join ConvergEx Group, LLC as President
Press Release (via PR Newswire)
…Prior to joining ConvergEx, Mr. Noll had been a senior executive at NASDAQ OMX, Inc. where, most recently, he served as Executive Vice President, Transaction Services, responsible for all US/UK Equity, Options and Futures Exchanges – including NASDAQ, NOM, PHLX, PSX, BX, BX Options, NFX and NLX.

Bailey joins Commerzbank as FX options head
Robert Mackenzie Smith – FX Week
 Industry veteran Richard Bailey moves back to the sell side to take a new role at Commerzbank in London. Meanwhile, derivatives head Peter Billington leaves the German bank.

Regulation and Enforcement

Wall Street May Take Derivatives Regulator to Court
Silla Brush & Robert Schmidt – Bloomberg
Gensler has issued more than a dozen advisory opinions directed at reining in the largest financial firms and swap traders without votes by his fellow commissioners. He’s also insisting on tightening the Volcker rule ban on proprietary trading by banks, making last-minute demands that could derail a regulation that must be approved by five U.S. agencies.

Regulators, Divided Over ‘Volcker Rule,’ Weigh Going It Alone
Scott Patterson – The Wall Street Journal
Bank regulators are considering passing the ‘Volcker rule’ without the blessing of the Commodity Futures Trading Commission, which has been pushing for 11th-hour changes ahead of a year-end deadline to finalize the regulation, according to people familiar with the process.

New U.S. derivative rules leave Asia markets vulnerable
Saikat Chatterjee and Rachel Armstrong – Reuters
Several Asian and U.S. banks are working around new U.S. regulations on derivatives trading aimed at preventing a repeat of the 2008 financial crisis – moves that are legal but leave markets in the region exposed to a risky liquidity shortage, traders and bankers say.

RBC Urges SEC to Test Overhaul of Exchange Business Model
Michael P. Regan – Bloomberg
The practice among stock exchanges of paying rebates to some traders puts long-term investors at a disadvantage and the Securities and Exchange Commission should consider eliminating the system, RBC Capital Markets said.


A Play on China’s New Birth Policy
Steven M. Sears – Barron’s
Sales of baby formula could rise, but the best bet is through options, not stock.

Options Education

The Lack of Fear in a Friday VIX
Adam Warner – Schaeffer’s Investment Research
Got this question the other day.
    “Hi adam, don’t you think the Vix should go down on a Friday before a Holliday week? Yet it’s positive.”
Well, it was still early Friday. The market was up a little, and the CBOE Volatility Index (VIX) was up a little as well. Ultimately, the VIX faded and closed down.
So yes, it should go lower on a Friday!


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