Observations and Insight

So many options: OptionsPlay looks to make better trades
By Jim Kharouf, JLN

Mark Engelhardt is like many entrepreneurs – he looked for something to help him out and couldn’t find the tool he wanted. So he built it himself.

The CEO and founder of OptionsPlay, Engelhardt wanted to find a tool that can help traders pick the right strike prices on options, a practice which is sometimes difficult and often ignored by retail traders.

“It came from a real need,” said Engelhardt, a long-time options trader. “I went to every broker site out there and none of them gave me what I was looking for – comparing trading strategies side by side. Then I added on the technical analysis, which many times is very complex, which do provide indicators on what to do and when to do it.”

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Lead Stories

Russell 2000 Volatility Hits Seven-Share High
Joseph Ciolli – Bloomberg
Traders are loading up on options as the Russell 2000 Index (RTY) hovers near the first 10 percent decline since 2012.
Demand for protection against further losses has pushed the Chicago Board Options Exchange Russell 2000 Volatility Index up 11 percent this year to 19.53. That’s the highest level since 2007 versus the VIX gauge of Standard & Poor’s 500 Index contracts. In the past three days, more than 1 million options traded on an exchange-traded fund tracking small-cap shares.

Smallcaps: Seven Years of Good Luck, and Then 2014
Brendan Conway – Barron’s
The “seven” years bit falls apart if we’re examining stock returns: Small-cap stocks got massacred in 2008 and they trailed again in 2011. But there’s another indicator showing investors haven’t been this worried about the group since 2007.

European investors turn to options to spot next M&A targets
Francesco Canepa and Blaise Robinson – Reuters
As corporate deal-making in Europe hits a 6-year high, a number of investors are turning to the derivatives market for signals to spot the next big takeover targets.
Call options, or bets that a price will rise, offer a cheaper way to take a punt on a possible takeover target than buying the underlying stock, making them a favoured instruments for investors looking to place a speculative M&A bet.

VIX Futures Speculators increased bearish positions last week to highest level since January
VIX Futures Contracts: Large traders and speculators raised their overall bearish bets in the VIX futures market last week for a second straight week and for the sixth time out of the last seven weeks, according to the latest data from the Commodity Futures Trading Commission (CFTC) released on Friday.

Last Week in VIX – 5/11/2014
Russell Rhoads – VIX Views
The S&P 500 was quiet and VIX was quiet – that can pretty much sum up the week. The S&P 500 actually lost a little over 2 points and did so while staying within a high low range of just under 30 points. The VIX drifting around in the chart below is a reflection of this.

National VIX Churn Week, Part 75
The numbers behind the past week’s market churn
Adam Warner – Schaeffer’s Investment Research
We’ve talked about The Great 2014 Churn over and over again. You might say it’s a churn of posts about churning. But I will submit that this past week took the churning cake.
The SPDR S&P 500 ETF Trust (SPY) closed at $188.06 on May 2. This past Friday, it closed at … $187.96, for a drop of $0.10! The closes ranged from a high of $188.42 (on Monday) to a low of $186.78 (on Tuesday). Now that’s some uninteresting action!

Videocast: VIX breaks key support

Farewell To The Fire
Tim Knight – Investing.com
If one graph captures the multi-year juggernaut of complacency that has swept the market, it is the (ARCA:VXX). With the VIX cracking into the $11.xx zone earlier Monday — and, who knows, we might even see single digits this year — one wonders if peace and contentment will be with us through the year 3157.

[India] VIX at five-year high ahead of exit polls
NSE’s volatility index, or India VIX, hits its highest level since March 11, 2009, and is headed for a fourth consecutive session of gains ahead of exit poll results later in the day.

Thinknum and OptionsPlay: Two Good Trade Aids
Theresa W. Carey – Barron’s
We’re always in the market for new ways to trade. Here are a couple of recently launched offerings that we believe can help you make more profit.
Thinknum (thinknum.com), a collaborative financial-analysis platform, was created last year by a couple of Princeton grads who met in a probability and stochastic-systems course. One went to work as a hedge fund analyst while the other became a quantitative strategist at Goldman Sachs.


London Stock Exchange is Late-Stage Bidder in Auction for Russell Investments
Telis Demos, Gillian Tan and Dana Cimilluca – The Wall Street Journal
London Stock Exchange Group PLC has emerged as a contender for Russell Investments, the stock-index and asset-management business that is on the auction block, according to people familiar with the matter.
The iconic U.K. stock-exchange operator is among a small group of late-stage bidders for Russell, which Northwestern Mutual Life Insurance Co. officially put on the auction block early this year.

CBOE: A Great Option for Playing Options
Call it a case of eating one’s own cooking, but this options trader is bullish on CBOE Holdings (NASDAQ:CBOE), operator of the Chicago Board Options Exchange, the dominant player among the 12 exchanges that trade options.
Last Tuesday, CBOE reported earnings of $0.56 per share on $157.9 million in revenue — increases of 14% and 11%, respectively. Concerns over margins and the balance sheet subsequently sent the stock down, but this represents a buying opportunity as growth potential remains robust.
Stock trading has trended lower over the past decade, but option volumes have grown by 5% or more in eight of the last 10 years.

CME Clearing Europe to Offer Collateral System With SIX
Nandini Sukumar – Bloomberg
CME Group Inc. (CME)’s European clearinghouse and SIX Group’s central-securities depository have agreed to offer an integrated collateral-management service to insurance companies operating in Switzerland.
Once the system gains regulatory approval, financial institutions will be able to put the collateral needed to back trades directly into CME Clearing Europe Ltd.’s account at the Swiss company’s settlement arm. The pair will gradually extend the service to other countries and types of investors, Robert Almanas, managing director of Zurich-based SIX Securities Services said in an interview on May 9.

Adena Friedman returns to Nasdaq
Nasdaq OMX Group Inc said Adena Friedman will rejoin the company as president of global corporate and information technology solutions, reporting to Chief Executive Robert Greifeld.
Friedman, who left Nasdaq in 2011, was most recently chief financial officer of private equity firm Carlyle Group LP .

CME Clearing Europe First To Receive Regulatory Approval For New Full Segregation Client Protection Model
Press Release (CME)
CME Clearing Europe, CME Group’s European clearing house, today announced that it is the first central counterparty (CCP) globally to receive Bank of England approval of the full segregation client protection model with enhanced protection for all bankruptcy scenarios. This new client protection model fully segregates collateral with an external custodian at the client level. The enhanced protection it offers for all bankruptcy scenarios is expected to result in favourable capital treatment.

Regulation and Enforcement

Timothy Geithner Calls Those Seeking Wall Street Accountability “Terrorists”
Mark Melin – ValueWalk
Speaking with Andrew Ross Sorkin on CNBC this morning about his new book, Stress Test, the man on the inside of the 2008 derivatives collapse found his vocal cords and delivered a common refrain: it could have been worse.
Comparing the 2008 to a jetliner just before it crashes, an apt analogy, Timothy Geithner waxed nostalgic on what is likely to be his most significant public policy involvement.
***JB: I suspect Geithner had to practice for days in front of a mirror to be able to say this stuff with a straight face.

High-Speed Traders Should Register, Ex-CFTC Economist Says
Silla Brush – Bloomberg
High-speed trading in U.S. futures markets is being dominated by a small number of firms that should be forced to register with regulators to ensure adequate oversight, the Commodity Futures Trading Commission’s former chief economist will tell lawmakers.


Trouble Brewing for Global Stocks?
Steven M. Sears – Barron’s
The iShares Russell 2000, considered a good reflection of the U.S. economy, is sharply below its March high. Yet the Standard & Poor’s 500 index, which many view as a proxy for the world’s biggest and best companies, is still dancing near its all-time peak.
The disconnect between how poorly U.S. small companies are faring compared with the largest foreshadows an age-old construct of market economics: If America sneezes, the rest of the world catches pneumonia.


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