Options-Based Expectations of Future Policy Rates
Michael Bauer – Federal Reserve Bank San Francisco
Forecasts of short-term interest rates that are based on futures rates in financial markets can be very misleading when the policy rate is near the zero lower bound. By contrast, options on future short-term interest rates can provide more accurate projections. Currently these options suggest that the federal funds rate – the Federal Reserve’s key monetary policy interest rate – is most likely to lift off from zero around mid-2015 and rise only slowly afterwards at a pace of about 1 percentage point per year.
***DA: After the regulators have shut down Intrade this is the best predictor we have.
Bank of New York Mellon to Shut Derivatives Sales, Trading Group
Kelly Bit – BloombergBusinessweek
Bank of New York Mellon Corp. told a group of employees today that it’s shutting its derivatives sales and trading business.
The decision affects about 50 people, almost all in New York, according to a person with knowledge of the matter, who asked not to be named because it’s private. Employees were told in a meeting earlier this month to expect changes so that BNY Mellon could focus on its core business of custody and collateral services, said the person.
Bank derivatives boom ahead of ECB test results as investors play safe
Francesco Canepa – Reuters
Investors hopeful but not entirely confident that next month’s European bank check will yield positive results are stacking up derivatives positions to balance optimism about the industry against worry over its performance in a faltering economy.
Volatility Storm in S&P 500 Failing to Fluster Tom Lee
Joseph Ciolli and Callie Bost – BloombergBusinessweek
Stock swings that sent volatility up 30 percent in a week are distracting investors from a U.S. economy that warrants a further run in the bull market.
So says Thomas J. Lee, the former JPMorgan Chase & Co. chief equity strategist and co-founder of Fundstrat Global Advisors LLC, who predicts a rally as profit estimates rise and manufacturing improves. Lee spoke in an interview yesterday as the Standard & Poor’s 500 Index fell for the fifth time in seven days and the Chicago Board Options Exchange Volatility Index jumped to the highest level in almost two months.
***DA: Meh. I think his reasons have already been priced into the market.
Amid Signs of Fear, Is the VIX Keeping Up?
Adam Warner – Schaeffer’s Investment Research
So, in the past couple of weeks, we’ve noted many signs of fear spiking.
We have the CBOE SKEW Index (SKEW) hitting 16-year highs. Volatility in currencies has spiked. The CNN Fear and Greed Index tilts way toward fear. The Russell 2000 Index (RUT) has hit multi-year lows vs. the S&P 500 Index (SPX). The iPath S&P 500 VIX Short-Term Futures ETN (VXX) and the CBOE Volatility Index (VIX) are acting relatively well — and on and on.
But, there’s one spot that hasn’t gotten extreme in all this. And that is, oddly enough, the VIX itself.
Option Traders Bullish on Alibaba
Saumya Vaishampayan – WSJ
What’s as hot as Twitter but not as frenzied as Facebook? That would be Alibaba BABA options.
Alibaba options went live Monday, with about 122,000 contracts exchanging hands, according to Trade Alert data. That’s in line with the roughly 122,500 contracts that traded in Twitter Inc.’s options debut back in November. But that falls short of the nearly 365,000 contracts that exchanged hands on the first day of Facebook Inc. options trading.
***DA: If you want quick bang for the buck, and were not among the lucky few to be in on the IPO, scooping up calls is your only hope. But it looks as though the train may have already left the station.
Keep Your Focus in an Uncertain Market
Bob Lang – CBOE Options Hub
Some day when the markets drop severely nobody wants to be left holding the bag. And while the collapse in 2008/09 is still very fresh in our minds we have to recognize that event was an outlier. For some it seemed rather surreal – how could the markets lose it? Yet the pain was REAL and felt across the investment world. Even with the SPX up 200% from those deep lows in March 2009 there has been hesitancy along the way. Unless you just bought at some point and closed your eyes and ears then you might not have even racked up enough gains to cover those deep losses. Every situation is different of course, and as a trader I am always ‘on the edge’ looking for the next big move within an uptrend or downtrend.
CME Group Expands International Leadership
Press Release (CME Group)
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the expansion of several leadership positions in its international business:
– William Knottenbelt has been appointed Senior Managing Director, International. He will oversee the company’s core business growth, customer relationships and new business opportunities throughout Europe, the Middle East and Africa (EMEA), Asia and Latin America, reporting to CME Group Chief Commercial Officer Bryan Durkin.
– Kevin Collins has been appointed Managing Director, Client Development & Sales – International, leading all sales efforts across asset classes for the EMEA, Asia and Latin America regions, reporting to Durkin.
– Martin Fraenkel has been appointed Global Head of Energy, overseeing the development and execution of CME Group’s energy strategy in the U.S. and internationally, reporting to Derek Sammann, CME Group Global Head of Commodities and Options Products.
***DA: Congratulations and best wishes.
Regulation and Enforcement
Finra Releases New Guidelines for Brokerage Tracking System
Scott Patterson – WSJ
The Financial Industry Regulatory Authority on Tuesday released new guidelines for a proposed computerized method to track balances and transactions in brokerage accounts, a step toward a system that could transform how regulators oversee the brokerage industry.
Finra says the system, which it calls the Comprehensive Automated Risk Data System, or Cards, will give it the ability to follow more closely how brokers handle customer funds. Cards will give examiners the ability to spot unscrupulous behavior by brokers, such as making trades that benefit the broker rather than investors, Finra says.
SEC’s Herbalife Insider Trading Trail Links to Pershing Analyst
Antoine Gara – The Street
The trader was charged, the roommate settled and the hedge fund analyst left the firm.
On Tuesday, the Securities and Exchange Commission charged Jordan Peixoto, the friend of a roommate of a Pershing Square Capital Management analyst, with insider trading in Herbalife (HLF_) shares. The SEC also settled with the Pershing analyst’s roommate, Filip Szymik, however, it did not charge Pershing Square or the analyst who roomed with Szymik. In fact, the SEC did not even name the Pershing analyst other than to say he is 28-years old, of Polish descent, and left the firm in 2013.
Energy companies facing ‘intrusive’ CFTC special calls
Alexander Osipovich – Risk.net
The US Commodity Futures Trading Commission is stepping up its market surveillance activities, issuing special calls to numerous firms that trade over-the-counter swaps. That is causing headaches for smaller energy companies tangled up in the dragnet.
Nadex Releases Advanced Desktop Binary Options Trading Platform
Avi Mizrahi – Forex Magnates
The North American Derivatives Exchange (Nadex), the only regulated retail online binary options exchange in the United States, today announced the release of Nadex Pro, an advanced PC desktop trading platform.
The new Nadex Pro system, as a PC desktop platform, is a departure from the norm in the binary options world as most brokers focus on web browser-based online trading and mobile apps trading, and not not on PC trading as is standard in the forex trading industry. The standard Nadex trader is browser-based and the broker only launched an iPad app last month to complete its mobile trading apps offering.
Is Now A Good Time To Buy XIV?
This past year I have been working on trading strategies involving the VXX and XIV securities. These are exchange traded notes (ETNs) intended to mimic the short-term moves in the CBOE volatility index (VIX).
The VIX is not a real trading instrument. Rather, it is a mathematical number calculated by the CBOE and derived from the value of stock options premiums within the S&P 500. If the options market is more active and traders bid up the premiums, this means that the options reflect more volatility in the stock market. A higher VIX number indicates more volatility.
How to Buy Alibaba Low, or Make Money Trying
Steven M. Sears – Barron’s
Alibaba may be a hot stock, but it is a lukewarm options trade.
Early options trading suggests sophisticated investors are taking a trust-but-verify stance toward one of the year’s hottest stock offerings. Alibaba’s (ticker: BABA) options began trading Monday.
The Options Industry Council Introduces New Animated Glossary
Press Release (OIC)
The Options Industry Council (OIC) announced today a new educational offering, Options Glossary Illustrated. OIC’s Options Glossary Illustrated is an ongoing series of short, animated clips that explain basic options terms and key concepts. The series is now available on OIC’s YouTube channel.
***DA: We are also featuring the OIC videos on our new MarketsWiki Education site HERE
Penny Stocks, Options and Trading on Margin (IWM)
Casey Murphy – Investopedia
At its best, investing in penny stocks can be an exciting, lucrative endeavor. In most cases, a good strategy is to maximize the leverage of the invested capital by buying as many shares as possible. A move of only a few pennies when multiplied by a large position can equal a substantial gain in a relatively short period of time.
***DA: Works both ways. A move of only a few pennies in the wrong direction can equal a substantial loss in a relatively short period of time.