JLN Options: Options Technology- Build vs Buy; Who Let the Vol Out?; VolDex prepares for options launch after SEC approval

Feb 13, 2014

Observations and Insights

Options Technology- Build vs Buy
Henry Schwartz – President, Trade Alert

Technology drew me into the options business nearly 30 years ago.  As a teenager growing up in Northern California, I’d heard rumors about a “blackjack genius” with a “mysterious stack of computers humming away in his garage” not far away.   To a geeky kid circa 1983 this was a big deal (think ‘War Games’ with Matthew Broderick) and to my amazement Blair Hull offered to give me a peek at the operation which would evolve into a global market-making powerhouse known as the Hull Trading Company.  Within 10 years Hull had 25% market share in SPX and traded nearly 10% of the US single stock options. The firm expanded overseas where the earliest electronic markets were a perfect fit for the firm’s trading style and in 1999 the firm was sold to Goldman Sachs for $531M.

Read More >>> http://jlne.ws/1doFXDn

Lead Stories

Who Let the Vol Out?
Andrew Giovinazzi – The Options Insider
More testimony leads to another flat day for the market.  After the rally of the last 3 days a rest was needed.  What is the strangest thing is the volatility crept into the market and just as fast is leaving the market.  VIX cash was down .20 today and all the volatility products pretty much followed suit.

VolDex prepares for options launch after SEC approval
Options linked to a new implied volatility index are nearing reality after the SEC granted approval to an application by the International Securities Exchange to list contracts on VolDex – a measure of 30-day at-the-money implied volatility of the S&P 500.
** Unclear if the market needs another place to trade implied volatility directly, but given this month’s single day volume record day for VIX options (2.4M contracts on Feb 3rd), a few points of market share would go a long way. -HS

BlackRock sees ‘aggressive selling’ out of equities
Joe McGrath – Financial News
BlackRock’s global chief investment strategist said the company has “seen aggressive selling” out of equity funds and into bond funds as nervy investors have been switching allocations.

Welcome Back Volatility
Russ Koesterich – Investor’s Business Daily
Last Monday, the VIX Index — a measure of volatility often referred to as the “Fear Gauge” — hit a 13-month high of 21.44 and U.S. stocks registered their worst day since last June. By Thursday and Friday, however, U.S. stocks rallied significantly, with back to back days of 100-plus gains in the Dow Jones Industrial Average. What’s going on?
Volatility, welcome back.

CBOE’s Jay Caauwe Talks $VXST
Good day friends of CBOE, Jay Caauwe back with a special report. CBOE Futures Exchange has announced that it plans to launch trading of futures with weekly expirations on the new CBOE Short-Term Volatility Index on Thursday, February 13, pending regulatory review and with Spot Trading as the Designated Primary Market Maker.
** Looks like a slow start there, I see 21 contracts traded as we head into the close, but not every product can start like Facebook and Twitter. -HS

A Bright Future for Swaps
Renee Caruthers – Traders Magazine
While no one expects swaps futures to take over the OTC swaps market, a movement of 5 percent of the massive OTC swaps volumes into swaps futures would be a huge win for futures markets.

Wall Street’s grandfathers of commodities to survive Fed revamp better than others
Anna Louie Sussman – Reuters
As the U.S. Federal Reserve considers new ways of reining in banks’ trading in what it sees as risky physical commodity markets, Wall Street’s two oldest and biggest players may ultimately gain in stature.

9 Reasons Why The Stock Market Has Been Correcting
2013 was a banner year for stocks, but 2014 has started off on a relatively sour note.
Markets are down so far this year, but that’s actually “helped re-establish more reasonable valuation metrics,” according to Gluskin Sheff’s David Rosenberg.

8 Bullish Factors To Consider
Benzinga (via NASDAQ)
Since the market has been dealt more than its fair share of crises over the past six years, traders have become pretty good at putting on and taking off a “crisis trade.” In a true crisis, traders have learned that they want to be short the S&P 500 (SPY) and long bonds, gold, premium — think VIX (VXX) — and the greenback.

High-Speed Traders Prompt Business Wire to Study Delays
Noah Buhayar and Sam Mamudi – Bloomberg
Business Wire is considering whether to encourage corporations that distribute press releases through its service to delay sending announcements until a few minutes after 4 p.m. New York time, reducing the odds of altering their stock’s closing price.

Videocast: VIX red as stocks rally

Attractive Alternative Treasury ETFs
Tom Lydon – ETF Trends
Treasury yields are beginning to tick higher after the bout of volatility sent investors to safety. While rates haven’t surged, Treasury bond exchange traded fund investors should prepare for a rising rate environment.
“Bond investors and traders should consider preparing for the next wave of volatility, and the potential for rising yields should the economy improve, and easing end,” according to a Direxion note.


Exchange Data Revenues Run Gambit of Gains and Losses
Giulia Lasagni – WatrerTechnology
Major exchanges reported a mixed bag of fourth-quarter financial results, with some reporting spectacular gains as a result of acquisitions and new initiatives, and others reporting lower revenues from data sales as a result of fewer subscriber numbers.
** Data fees are going to be a hot issue this year.  Exchanges need to watch out for data fees negatively impacting product visibility.   -HS

EnterNext announces new Directors
Press Release (NYSE)
The EnterNext Board of Directors, meeting on Monday, February 10, 2014, coopted Anthony Attia and CGPME, represented by Bernard Cohen-Hadad, as Directors. They replace Roland Bellegarde and Jean-François Roubaud. These appointments will be submitted to shareholders at the company’s next general meeting for their approval.

BATS Global Markets in January: Direct Edge Merger Closes; Another New Monthly Record in Spain
Press Release (BATS)
February 12, 2014 – BATS Global Markets (BATS) today announces highlights for January, including the successful merger close with Direct Edge Holdings LLC and new monthly market share records in Europe, including 18.2% in Spain’s IBEX 35 and 9.0% in Depositary Receipts (FTSE RIOB).
http://jlne.ws/1bplOOG (PDF)

Toronto Stock Exchange Mandates Majority Voting to Further Enhance Corporate Governance
Press Release (via CNW)
Toronto Stock Exchange (TSX) today announced that it has received notice of approval from the Ontario Securities Commission to proceed with amendments to the TSX Company Manual, mandating TSX issuers adopt majority voting.

Regulation and Enforcement

SEC Said to Hire Ex-Finra Exec Luparello to Run Trading Division
Dave Michaels – Bloomberg
The U.S. Securities and Exchange Commission is poised to name a former executive of Wall Street’s self-regulator as its top overseer of exchanges, brokerages and clearing firms, according to three people familiar with the matter.


XIV: How To Avoid A Disastrous Loss And Boost Your Total Return.
Fred Piard – Seeking Alpha
VelocityShares Daily Inverse VIX Short-Term ETN (XIV) is a product issued by Credit Suisse AG. About ten million shares are traded per day and the market capitalization is above $800 million. XIV gained a huge success because its characteristics make it very profitable in certain market conditions. Not all XIV shareholders may be aware of these conditions.

Get to grips with currency exposure
Mark Robinson – Investors Chronicle
I would wager that about the only time most of us take an active interest in the foreign exchange markets is when we’re gearing up for a sojourn abroad. Trying to strike the most favourable euro/sterling rate in the weeks leading up to a fortnight away in Mykonos makes sense, so it seems peculiar that many equity investors are either unwittingly exposed to currency risk, or simply choose to ignore it.

Why you should be wary of crowds
Shane Oliver – Markets Spectator
Sometimes being at one with a crowd can be nice, like at rock concerts. It adds to the ambience and safety in numbers can provide comfort. However, when crowds turn they can be dangerous – you might get trampled! In fact a wariness of crowds is essential to successful investing.

Options Education

What Implied Volatility Tells Us
Russell Rhoads – CBOE
Today I recorded a video with Angela Miles for CBOE-TV where we discussed implied volatility.  Implied volatility is a measure that is determine from the market price of an option.  A statistical equivalent is a single standard deviation price change.  A viewer had asked if implied volatility was a price projection for an underlying market.

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