JLN Options: S&P 500 Sets New Record High; For Tesla Bullish Options, Its Pedal to the Metal; VIX Futures Think Current Levels are Fair

Feb 27, 2014

Observations and Insights


Vol Spike: CBOE Futures Exchange’s Jay Caauwe Introduces the Short-term Volatility Index

In February 2014, the CBOE Futures Exchange began listing contracts on the short term volatility index (VXST) – a 9-day variant of its flagship 30-day VIX futures.

In an interview with John Lothian News Editor-At-Large Doug Ashburn, CFE’s Jay Caauwe discusses the launch of VXST, the rationale behind the listing of VXST futures and which participants and strategies will be prevalent.

Watch the video »

Lead Stories

S&P 500 Sets New Record High
Chris Dieterich – The Wall Street Journal
U.S. stocks rose Thursday, putting the S&P 500 on course for a record high as investors interpreted mixed economic signals and the Federal Reserve chief’s testimony to Congress.
The S&P 500 gained eight points, or 0.4%, to 1853, putting the index on track to finish above the all-time closing high of 1848.38 hit six weeks ago.

For Tesla Bullish Options, Its Pedal to the Metal
Kaitlyn Kiernan – The Wall Street Journal
Even after a one-week 31% gain in Tesla Motors Inc. stock, the bullish bets are still piling up in the options markets.
“There is so much momentum, this is the place people want to be,” said J.J. Kinahan, chief strategist at T.D. Ameritrade. “It’s pretty crazy.”

The New Tesla Convertible: You Heard It First Here, And It’s All About Volatility
Bill Feingold – Forbes
Just after 3pm today I suggested that Tesla Motors, which issued a $600 million convertible just under a year ago, could and probably should do a bigger one now, with its stock up over 150% from the time of the first deal.

VIX Futures Think Current Levels are Fair
Mark Sebastian – CBOE
Normally, when the VIX begins to enter a new level, the Futures don’t ‘buy’ into the move. This causes the VIX to either be overly backward for periods of time, at levels the VIX would not be backward in, or alternatively, to have an extra steep contango when IV is clearly dropping.

Fund Tries to Profit With Put Writing
Roger Nusbaum – The Street
One year ago, fund provider ALPS launched the High Volatility Put Write Index Fund (HVPW) as a first-of-its-kind fund that sells, or writes, cash-secured naked put options. It is still the only fund whose primary strategy is put writing.

Levine on Wall Street: It’s All Derivatives
Matt Levine – Bloomberg
Here is a story about how the European Securities and Markets Authority is in a bit of a tizzy because different European securities regulators have different views about what derivatives trades need to be reported, because they have different views about what is a derivative.

Loeb Sees More Volatility Boosting Chances for Investment
Noah Buhayar – Bloomberg
Billionaire hedge-fund manager Dan Loeb said he expects markets to fluctuate more this year, providing chances to add to his portfolio.
Volatility has been below historic averages as stocks rallied in a five-year bull market. The Standard & Poor’s 500 Index jumped 30 percent in 2013, the most in 16 years, and hasn’t posted a decline of more than 10 percent since 2011.

Videocast: VIX dip draws buyers

Stop trading! Now, before 2014 turns into 1929
Paul B. Farrell – MarketWatch
Don’t kid yourself. Anxiety’s still sky high. Hidden in denial. Fears of a 2014 crash haunt us like bloody horror films, “Dawn of the Dead,” “Friday the 13th,” “Psycho.” The two 1929 and 2014 charts really are scary.

Why a stressed-out trader is a wimpy one
Christina Rexrode – MarketWatch
Throw a bunch of traders into the crucible of long-term stress and their swashbuckling nature, far from rising to the occasion, instead shrinks away, leaving them clammy at the prospect of making bold financial bets, according to a new study co-authored by Cambridge neuroscientist John Coates. And while at first blush such a result sounds nice — we want banks to take less risk, don’t we? — it’s actually doing the market no favors, Coates hypothesizes.
**Probably why Ceres (restaurant/bar in the CBOT building where I work) does such great business and probably why their drinks are poured strong. -JB


CME’s Duffy: We’re Doing a Little Bit of Work Looking at Bitcoins – Fox Business
Dow Jones Business News (via NASDAQ)
Executive Chairman Terry Duffy said on Fox Business Network Thursday that the exchange is “doing a little bit of work” looking at Bitcoins.
“To be honest, we are doing a little bit of work looking at them,” he said, “but I mean a little and that’s it.

Nasdaq Says No Merger Discussions With LSE, Euronext
Nandini Sukumar – Bloomberg
Nasdaq OMX Group Inc. (NDAQ) Chief Executive Officer Robert Greifeld said he’s not engaged in merger talks with London Stock Exchange Group Plc (LSE) or Euronext NV, the European market operator on the verge of being spun off.
“We have a full-time job focused on what we are doing in the U.S.,” he said during an interview in London yesterday.

BATS Chi-X Europe Appoints Jill Griebenow as Chief Financial Officer
Press Release (BATS)
BATS Chi-X Europe, the largest pan-European equities exchange, today announced the appointment of Jill Griebenow as Chief Financial Officer.
Ms. Griebenow joins from parent company BATS Global Markets with immediate effect, and is responsible for all financial control and human resource functions at BATS Chi-X Europe, including financial planning and reporting. Jill is based in London, reporting directly to CEO Mark Hemsley.
http://jlne.ws/1pxzz1l (PDF)


How they’re engaging the next generation of financial-tech talent
Amina Elahi – Chicago Tribune
As more business students entertain the call of Silicon Valley over Wall Street, the high-tech trading world is looking for inventive ways to develop and recruit top talent.
The need is magnified as algorithm-based trading strategies surge, increasing the financial industry’s demand for software developers, says Leo Murphy, university program manager at Chicago-based Trading Technologies.

U.S. SEC’s newest enforcement weapon: powerful software
Emily Flitter and Sarah N. Lynch – Reuters
The U.S. Securities and Exchange Commission is beefing up its capacity to detect insider trading and other illegal activity by engaging with Palantir Technologies, a software company originally set up to help foil terrorists.


How to Sell High, but Keep on Profiting
Steven M. Sears – Barron’s
Buy low. Sell high.
Most investors think that only applies to stocks, but options traders know better.
When options volatility is low, and stock prices are high, investors can lock-in profits by selling high-priced stocks and replacing them with relatively inexpensive bullish call options.

WisdomTree: Currency Hedged Equities – What’s Plain Vanilla?
Jeremy Schwartz – ETF Trends
The concept of hedging one’s currency exposure on international equity investments has been building momentum—especially in light of Abenomics taking hold in Japan during 2013. A primary question we see being discussed is whether a currency-hedged equity strategy belongs as part of a portfolio’s core international allocation or as a more satellite-oriented tactical approach.

Options Education

To Trade A Volatility ETP Or Not To Trade A Volatility ETP?
Christian Treitler – Seeking Alpha
The topic of “volatility” has gotten some prominence again, especially since the US stock market suffered a decline of more than 5% at the beginning of this year. (Mind you that a 5% or even a 10% decline in stocks is nothing unusual. It is more unusual to have a steady rise in stocks – and we saw that happen between the summer of 2011 and the end of 2013, when there was no stock market decline greater than 10%.)

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