JLN Options: Paranoia Squashed as VIX Sinks Most in Two Months on Fed; Resources pessimism may offer opportunity; Looking Ahead: The VIX in 2014

Dec 19, 2013

Lead Stories

Paranoia Squashed as VIX Sinks Most in Two Months on Fed
Another bout of market paranoia came to nothing yesterday as stock investors looked past reduced Federal Reserve stimulus and focused on assurances that interest rates would stay near zero percent.

Resources pessimism may offer opportunity
Jamie Chisholm – Financial Times
Amid the avalanche of analysts’ recommendations for the coming year, Trading Post finds the following among the more intriguing.
Derivative analysts at Barclays reckon investors should take advantage of the overly pessimistic attitude towards the resources sector, alongside its relatively high long-term option implied volatility levels to sell long-dated puts in mining stocks.

Looking Ahead: The VIX in 2014
Adam Warner – Schaeffer’s Investment Research
“Volatility got way too cheap — and complacency too high — in 2013. There’s a great temptation in market commentary to call everything either a “Bubble” or a “Generational low.” Life rarely hit such extremes, so I am reluctant to hitch my wagon to either train too often. Still, reversion to the mean — in this case “20” on the VIX — is a powerful force in life and markets. As old time TV detective Baretta used to say, “You can take that to the bank.””

Investors’ new challenge: Deciphering central bank ‘guidance’
Jamie McGeever – Reuters
The gradual withdrawal of unprecedented stimulus by the world’s big central banks is officially underway, posing a new challenge to investors: how to decipher monetary policy that will increasingly amount to not much more than words.

High speed trading overtaken by strategies and analysis
Jonathan Watkins – Future and Options Intelligence
Speed is becoming less of a differentiator and more of a competitive necessity, meaning firms are now concentrating on trading strategies to gain an advantage.

Videocast: Selling in VIX premium


2013 Review: For Exchanges in 2013, Life’s a Glitch
Faye Kilburn – WatersTechnology
US stock and options exchanges suffered such significant outages in 2013 that regulators step ped in to bring the markets to task over the failures, many of which were linked to problems with the exchanges’ ability to disseminate market data.

ICE unveils details of Liffe-ICE Futures Europe merger
Renee Caruthers – FierceFinanceIT
IntercontinentalExchange Group Inc. will begin transferring Liffe contracts to its trading platform and ICE Futures Europe over the summer, with full integration expected by the end of 2014, according to a press release.

MIAX Options Exchange Reaches Listing of Classes Representing Over 95% of Industry Volume
Press Release (MIAX)
MIAX Options Exchange (MIAX) announced today that it has completed the recent rollout of 388 additional option classes. MIAX now lists options on 983 underlying equities securities representing over 95% percent of equity options industry volume traded on December 16, 2013.
http://jlne.ws/1cDxUOh (PDF)

Regulation and Enforcement

CBOE claims victory in legal battle with rival ISE
John McCrank – Reuters
CBOE Holdings Inc (CBOE.O), which runs the largest U.S. options exchange, said on Wednesday a judge had dismissed a challenge by rival International Securities Exchange against CBOE’s exclusive license to list options on certain key U.S. indexes.

SEC May Target Exchange-Traded Notes Next in Push to Simplify
Kevin Dugan – BloombergBusinessweek
A regulatory push to make complex securities easier to understand could change how banks disclose risks for exchange-traded notes for the first time since they began trading in 2006.

EU lawmakers fail to get deal on financial market rules overhaul
Jim Brunsden – Bloomberg
European Parliament lawmakers and national officials failed to clinch a deal to overhaul the bloc’s financial market rulebook, relinquishing their goal of finding an accord by year-end.
Negotiations broke down in Brussels yesterday over the scope of planned curbs on commodity derivative speculation and on investor protection rules, Sven Giegold, a German lawmaker representing the assembly’s Green group in the talks, said in a telephone interview.

CFTC Misreporting Size of Swaps Market, Agency Says
Andrew Ackerman – The Wall Street Journal
U.S. commodity regulators are stumbling at one of their primary goals: bringing transparency to the multitrillion-dollar swaps market.
The Commodity Futures Trading Commission said Wednesday that technical errors at two so-called swaps data repositories, which collect and supply regulators with transaction data, have led the CFTC to misreport the overall size of the swaps market by undercounting its size.

CFTC Proposal for High-Speed Trading May Drive Business Offshore
Holly Bell – American Banker
Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act tasks the Commodity Futures Trading Commission with developing rules to regulate the swaps market. Due to events like the “flash crash” of May 2010, algorithmic software glitches at Knight Capital, and quote dissemination system connectivity issues at the Nasdaq, the CFTC is now considering new rules for automated, high-frequency trading. However, it is unclear whether the commission needs new regulations for high-speed trading technology when the market already has incentives to ensure these types of incidents don’t occur in the future.


Trading Technologies Goes Live on NASDAQ OMX NLX
Press Release (TT)
Trading Technologies International, Inc. (TT) today announced the release of its connection to NASDAQ OMX NLX (NLX), the new London-based derivatives trading market.
NLX lists European short-term interest rate (STIR) and long-term interest rate (LTIR) euro- and sterling-based futures products. All NLX products clear through LCH.Clearnet, providing optimal initial margin efficiencies for market participants who will have the unique ability to portfolio margin both STIRs and LTIRs in a single clearing house.


How Time Decay in Options Can Be Your Best Friend – Know Your Options
By Zacks.com
Today let’s talk about one of the ‘Greeks’ in options trading that doesn’t get enough coverage — and that’s Theta.
Theta measures how much value an option will lose each day due to the passage of time as the option gets closer to expiration. This is known as time decay.

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