Observations and Insight

Blair Hull – Getting the Edge: Blackjack and the S&P 500
JohnLothianNews.com

“What you need to be is persistent and disciplined in your strategy.”

Blair Hull, founder and managing partner at Ketchum Trading, compares the similarities of playing Blackjack with trading the S&P 500. Hull is not only an experienced Blackjack player, but also has about 40 years of experience in the financial industry. He says that both Blackjack and trading can be approached using a similar strategy. Hull continues his explanation with diagrams and numbers to be aware of during the Blackjack and trading process and even correlates the deck of cards with amounts of dollars made per trade.
Watch the video »

Lead Stories

Rift between VIX options and futures traders bodes well for stocks
Tomi Kilgore – MarketWatch
The battle between traders of volatility-based options and futures is heating up — a sign that investors can expect the stock market to calm down in the coming months.
This bodes well for most investors.
http://jlne.ws/1vkc2ll
***DA: It is a sign that investors expect calm, but not a sign that the market will be calm. Market timing is and always will be a tricky business.

Profit Hedges Get Expensive at SocGen, Credit Agricole: Options
Inyoung Hwang – Bloomberg
Options bears are circling French banks.
Turmoil in Russia and Greece, regulatory scrutiny and the collapse of oil is weighing on the minds of traders already smarting from an earnings report that sent BNP Paribas SA plunging last week. A weak economic outlook in France is adding to concerns, says SVM Asset Management Ltd.’s Hugh Cuthbert.
http://jlne.ws/1yfhjL6
***DA: Doesn’t sound like calm to me.

Should You Take Your VIX Cues from Hedge Funds?
Adam Warner – Schaeffer’s Investment Research
Reports indicate that hedge funds are losing interest in shorting the CBOE Volatility Index (VIX).
http://jlne.ws/1KJkmnJ
***DA: Nor does this.

VIX Up 37%, SPX Flat: House Of Cards Or House Of Fear?
Chris Kimble – Investing.com
Do some investors think the market is a “House of Cards?” I say humbly that I don’t know. It sure seems like something has them concerned, as fear levels remain lofty with the market making little progress up or down.
Over the past 90-days the S&P 500 is pretty much flat (up less than 1%). During that time the VIX (Fear Index) remains elevated, as it’s been up the majority of the time the market has been going sideways.
http://jlne.ws/1CV99Pz
***DA: Or this.

Singapore decides against swaps trading switch
Philip Stafford – Financial Times
Singapore has decided against forcing more swaps trading on to regulated electronic trading platforms, putting it at odds with the US and Europe on implementing derivatives market reforms.
The Monetary Authority of Singapore, the central bank and financial markets regulator, decided on Wednesday that move was unnecessary “for now” but did not rule out a change at a later date.
http://jlne.ws/1zW7G8c
***DA: Regulatory arbitrage, anyone?

U.S. Equity Volatility Is ‘Back To Average’
Michael Ide – Seeking Alpha
Volatility is up across the board, in some cases from historic lows to recent highs, but the general pensiveness may be overdone for some asset classes. Equity and credit volatility in particular could come back down, according to a recent Morgan Stanley report.
http://jlne.ws/1KJk7Jj

Options mark significant expansion of traders’ toolkit
Global Times
China’s derivatives hit a major milestone Monday with the start of options trading based on an exchange-traded fund (ETF) tracking the 50 most heavily weighted stocks on the Shanghai Stock Exchange (SSE50). This new tool marks China’s first foray into options trading and many expect additional instruments to hit the market soon. The Global Times interviewed three experts to get their views on this topic.
http://jlne.ws/1KJkJhX
***DA: I’ll put SSE50 options right next to my Swiss army knife and compass.

Oil’s surge in volatility just what traders want in profit hunt
Angelina Rascouet – Bloomberg News (via Chicago Tribune)
The biggest swings in crude prices since 2009 are signaling more money for traders.
The CBOE Crude Oil Volatility Index, which measures fluctuations using options of the U.S. Oil Fund, climbed to 63.14 on Feb. 5, the highest level in almost six years. More than 5 million contracts of Brent crude, the global benchmark, traded on the London-based ICE Futures Europe exchange last month, an increase of 29 percent from a year earlier.
http://jlne.ws/1KJleZj

Exchanges

As CME closes its trading pits, what’s a seat worth?
Lynne Marek – Crain’s Chicago Business
CME Group may be closing more than half its trading pits in Chicago and New York, but the value of a “seat” at its main exchange is near its highest level in five years.
A seat-holder is a member of one of CME’s exchanges, such as the Chicago Board of Trade or the Chicago Mercantile Exchange, and that membership gives traders access to the trading floor. But it also provides discounts on CME trading and clearing services (in which CME acts as a kind of guarantor of the trade).
http://jlne.ws/1vk8NKJ
***DA: Like any asset, it is worth the present value of future cash flows, which could be lessor income, or of the differential between member and non-member fees times the holder’s trading volume. At less than one percent of overall volume, the move to close the pits should not materially affect either calculation.

CME to launch EU wheat futures by end-April: document
Valerie Parent and Gus Trompiz – Reuters
European Union wheat contract by the end of April, a draft document showed, confirming the world’s largest futures exchange is well advanced with its plan to challenge Euronext’s (ENX.PA) regional supremacy.
The exchange will offer futures and options, with September 2015 as the first delivery position available for trading.
http://jlne.ws/1KJhUxj
***DA: Game on.

Regulation and Enforcement

White House to Create Agency to Fight Cyber-Attacks
Bloomberg
President Barack Obama is creating a new agency to combat cybersecurity threats against the U.S. government and private businesses, according to a senior administration official.
The Cyber Threat Intelligence Integration Center will coordinate information between various agencies and departments that handle hacking attacks, said the official, who requested anonymity because the information hasn’t been made public. It will be announced Tuesday by Lisa Monaco, assistant to the president for homeland security and counterterrorism.
http://jlne.ws/1CV9qC5

Events

CBOE RMC, March 4-6 2015, Carlsbad California
Now in its 31st 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. Hosted by the Chicago Board Options Exchange (CBOE), RMC is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure and enhance yields. RMC brings together top traders, strategists and researchers, enabling participants to learn the state-of-the-art in investment risk management from true experts in the field.
http://jlne.ws/1zarals

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