JLN Options: Penny Pricing for U.S. Stocks Said to Get Scrutinized; 'Tis the year without volatility for stock investors; Volatility Patterns: Destined to Repeat Themselves?

Dec 4, 2013

Commentary and Insight

Scott O’Malia

CFTC’s Scott O’Malia Calls for a Plan of Action on Swap Data
New Dodd-Frank rules have allowed regulators their first look into swap data repositories, but the quality of swap data is not always up to par. In fact, it has been called “a mess” by CFTC Commissioner Scott O’Malia, who also chairs its Technology Advisory Committee. O’Malia sat down with John Lothian News editor-at-large Doug Ashburn at SEFCON IV to discuss the commission’s data challenges and his “call to action” in early 2014.

Watch the video »

Lead Stories

Penny Pricing for U.S. Stocks Said to Get Scrutinized
Sam Mamudi – Bloomberg
Securities executives are trying to determine if the 12-year-old decision to narrow the price increments for American stock trading has harmed investors, according to two people with knowledge of the matter.

‘Tis the year without volatility for stock investors
Jason Kephart – Crain’s Detroit Business
It’s been a wonderful year to be a stock investor. Not only is 2013 shaping up to deliver the best returns of the past 10 years, it’s also offered one of the smoothest rides.
**There’s a Crain’s Detroit Business? Who knew? -JB

Volatility Patterns: Destined to Repeat Themselves?
Adam Warner – Schaeffer’s Investment Research
So how volatile was the market in 2013? Not so much. Steve Russolillo had some interesting stats here in yesterday’s Wall Street Journal Morning MoneyBeat:

VIX in Longest Rally Since 2012 on Fed, Budget Concerns
Nikolaj Gammeltoft – Bloomberg
The benchmark gauge for U.S. stock options rose for a seventh straight day in the longest streak since April 2012 on concern over the timing of Federal Reserve stimulus cuts and the outcome of budget negotiations.

Too Bullish for Comfort
Michael Kahn – Barron’s
The stock market never likes when almost everybody thinks the same way and often does the opposite of what is expected. Last week, for example, sentiment indicators showed lopsided love for equities, and right on cue the market pulled back. The Standard & Poor’s 500 has fallen each day this week through midday Wednesday.

AlphaMetrix woes could cost fund managers
Lynne Marek – Crain’s Chicago Business
The decline of AlphaMetrix Group LLC could mean as much as $10 million in losses for fund managers who worked with the Chicago-based company, according to a federal court monitor.

Wayne Luthringshausen’s bucket list includes woodworking, travel
Crain’s Chicago Business
Wayne Luthringshausen, board chairman and CEO of Options Clearing Corp., is retiring at the end of the month after 40 years with the main clearinghouse for U.S. stock-options trading.
I caught up with him to talk about his long career and his bucket list.

Videocast: Bets on lower volatility


U.S. Stock Exchanges Delay Expansion of Volatility Curbs
Sam Mamudi – Bloomberg
U.S. stock exchanges delayed the expansion of volatility curbs by two months, according to a notice from Nasdaq OMX Group Inc.

Taiwan Futures Exchange and Eurex to launch joint venture in May
David Bannister – Banking Technology
The Taiwan Futures Exchange and Eurex, Deutsche Börse’s international derivatives market, plan to launch a cross-listing link 15 May 2014. With this link, Eurex Exchange will list TAIEX index futures and options as daily expiring futures on Eurex. Derivatives on the TAIEX index are one of the most heavily traded Asian equity index contracts.

NYSE Euronext Announces Trading Volumes for November 2013
Press Release (NYSE)
NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for November 2013.  Global derivatives average daily volume (“ADV”) of 6.6 million contracts, excluding Bclear in November 2013 increased 1.6% compared to November 2012 and increased 1.7% from October 2013.  U.S. equity options volumes in November 2013 decreased 7.8% compared to November 2012 and decreased 4.4% sequentially.  ADV in U.S. cash equities declined 12.6% year-over-year and decreased 5.2% month-over-month. European cash equities ADV in November 2013 increased 14.4% compared to November 2012, but decreased 3.3% from October 2013 levels.

CME Daily Trading Volume Rises 9% in November
Everdeen Mason – The Wall Street Journal
CME Group Inc.’s (CME) November daily trading volume rose 9% as a significant rise in interest-rate and futures contract volumes offset a drop in equity index and metals volume.

Regulation and Enforcement

Wall Street Sweats Out Volcker Rule Impact on Revenue
Michael J. Moore & Dakin Campbell – Bloomberg
Wall Street banks, which already shut proprietary trading units that helped fuel record profits, are girding to learn next week how much revenue the Volcker rule may cut from the $44 billion they say comes from market-making.

CFTC’s O’Malia offers New Year resolution: getting its own house in order
Automated Trader
After another hectic year of rule-making, outspoken CFTC Commissioner Scott O’Malia said the regulator needs to prioritise rule fixes and improvements to its own methods.

Antitrust: Commission fines banks € 1.71 billion for participating in cartels in the interest rate derivatives industry
Press Release (European Union)
The European Commission has fined 8 international financial institutions a total of € 1 712 468 000 for participating in illegal cartels in markets for financial derivatives covering the European Economic Area (EEA). Four of these institutions participated in a cartel relating to interest rate derivatives denominated in the euro currency. Six of them participated in one or more bilateral cartels relating to interest rate derivatives denominated in Japanese yen.


Software Vendor Brings Transparency to Complex Swaps Data
Ive Schmerken – Wall Street & Technology
London-based Clarus Financial Technology has created software apps that overlay ICAP’s pre-trade bid-ask levels on top of the aggregated views of post-trade data collected from swap data repositories.


Trade SPX Options Amid an Overblown VIX
Tyler Craig – InvestorPlace
Don’t look now, but fear is making a comeback. Amid the three-day stock slide, Wall Street’s favorite volatility gauge — the CBOE Volatility Index (VIX) — rallied more than 15% to a new two-month high. With the S&P 500 down a mere 1%, the outsized jump in the VIX seems pretty overdone, no?

Using Options to Capitalize on Strong Fundamentals for Gold
Chris Vermeulen – Smallcap Network
My trading partner JW and I had a great talk the other day which spurred to the creation of this interesting and educational gold futures trading article we wanted to share with you.

Covered Writes for the Downside?
Dan Sheridan – Sheridan Options Mentoring
2013 has been a banner year for Covered Writes. The market is up big and this bullish strategy has been like an ATM machine. The S and P’s have climbed from the 1400 level to its current peak around  1800 . That’s an increase of over 25%! What are your expectations for the rest of 2013? How about 2014? Maybe you are still bullish, but you would like to have a little less exposure on the downside in 2014?

Options Education

Short-Selling Options & Stop Triggers
Russ Allen – MoneyShow.com
Question: I heard that when I sell an option short, I should always immediately put in a good-til-canceled order to buy to close it at $.05. I have observed that some option contracts do not reach $0.05 until late on expiration Friday afternoon, while others have reached $0.05 a week before expiration. My question is, “Why do we buy back our option contracts at $0.05 instead of allowing them to expire?”

Options and the conservative investor: Proceed with caution
Elliot Raphaelson – Chicago Tribune
Are options a type of security conservative investors should consider out of their league? It depends on how they’re used — and they’re typically used for speculation.

The Fundamentals of Iron Condors
Dan Passarelli – The Options Insider
Have you ever noticed a professional athlete warming up before a game or match? What are they doing? They are stretching, running, throwing and catching just to name a few for example. What they are really doing is working on the fundamentals. To be good at anything requires learning the fundamentals and constantly working on them throughout your career no matter what your career is.


2014 CBOE Risk Management Conference
Press Release (CBOE)
The Chicago Board Options Exchange (CBOE) will host the 30th Annual CBOE Risk Management Conference (RMC), from Monday, March 17 through Wednesday, March 19, 2014, at the Hyatt Regency Coconut Point Resort and Spa in Bonita Springs, Florida.
Now in its 30th year in the U.S., the annual CBOE Risk Management Conference (RMC) is the premiere financial industry conference designed for institutional users of equity derivatives and volatility products.


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