JLN Options: Smart software key to fate of CME options pits as futures closure looms; Staying Ahead of the Volatility Pseudo Curve; Stock-crash contrarianism isn’t what it used to be

Jun 24, 2015

Lead Stories

Smart software key to fate of CME options pits as futures closure looms
Christine Stebbins – Reuters
As the July 6 deadline for closing the century-old Chicago Board of Trade grain futures pits looms, a cloud hangs over the future of the neighboring options pits.
Traders and analysts say they are likely to stay open for at least 18 months and probably longer, while CME Group Inc , which runs them, will not say how long it intends to keep them open. The answer depends in part on how soon developers deem it cost-effective to create the fancy software needed to execute complex options trades on screens.

***JB: I for one welcome our robot overlords.

Staying Ahead of the Volatility Pseudo Curve
Howard Simons – TheStreet
One of the most difficult things to do during one of the market’s periodic stampedes for the exit is to remind yourself that babies are being thrown out with the bathwater, the piano player is being arrested, things are being tarred with the same brush, the sun will rise tomorrow and metaphors will continue to be mixed. The opposite applies to rallies as well, although we never seem to be as concerned about those as they are presumed to be the natural course of events.

***JB: “The piano player is being arrested”? New one on me. Even Google doesn’t recognize that one. Email me if you know what that metaphor means. I just gotta know now!

Stock-crash contrarianism isn’t what it used to be
Michael A. Gayed – MarketWatch
Everyone is bearish! Everyone is calling for a stock market crash! That means equities are only going to go higher! Buy. Buy!
I’ve come across the above sentiment quite a bit in my travels across the country, and often read such commentary at the end of my own writings and others’ here on Marketwatch. There seems to be some belief out there that “everyone” is overly bearish, with the negative side often getting the most attention in financial media.
First, let’s be very clear. There is a direct link between the VIX VXX, +1.29% and attention when it comes to financial markets. Good news does not bring in eyeballs to the same degree as fear. That fear tends to occur when doubt rises in equity markets through significant price gyrations and the breaking of the illusion of trend consistency that many fall prey to.

The Cheapest VIX of the Year?
Adam Warner – Schaeffer’s Research
You know that long-awaited CBOE Volatility Index (VIX) pop, the one everyone is always anticipating? It looks like we may have to keep anticipating, at least for a couple more weeks.
And no, that has nothing to do with the never-ending Greek drama, or any of the next drivers of market volatility that Michael Santoli lays out here. Rather, it’s just the calendar. We have just entered the seasonally worst time of year for implied volatility (IV).

Jamaica hedges against higher oil price
Neil Hume and Anjli Raval – Financial Times
Wall Street is urging developing world governments and large oil importing nations to use financial derivatives to lock in the benefits of last year’s crude price rout.
Jamaica has bought call options contracts from Citigroup that protect the Caribbean island against any unexpected rise in the cost of crude, according to a memo circulated by the bank.

Indicator of the Week: The Third Year in Presidential Cycles
Rocky White – Schaeffer’s Research
There’s just one week to go before 2015 is halfway over, and the S&P 500 Index (SPX) is up just over 3% on the year. That’s not all that exciting, but it’s not dreadful over a six-month period. However, remember that this is the third year of a presidential cycle. Returns during these years have typically been astounding. The table below breaks down the SPX returns since 1949 for each year in the presidential cycle. The third year is head and shoulders better than any of the other years. It averages a gain of 17% and has been negative just one time in 16 returns. Furthermore, the one down year was 2011, when the index was essentially even, slipping a mere 0.003%.

Don’t Hold Your Breath on T+2 Arriving in 2017
Anthony Malakian – WatersTechnology
Recently the T+2 Industry Steering Committee (T+2 ISC) released a timeline that aims to move the US markets to a settlement cycle of two days — hence, T+2.
This is a necessary first step — though this is probably step 1,001 in the process — to improve the trading ecosystem in the US and move it in line with other markets that have surprisingly left America in the dust. I really do want this to work. I’ve been hearing about T+2 since I first started here as it’s a topic Waters has been covering for the better part of two decades.


Nasdaq Migrates Disaster Recovery To Equinix’s Chicago Data Center
Press Release
Nasdaq and Global Access Services, the exchange group’s market solutions provider for the financial services community, and Equinix, the global interconnection and data center company, today announced that Nasdaq is moving its Disaster Recovery (DR) site for the US equities and options markets in a phased approach from Ashburn, Virginia to Chicago, Illinois beginning in August 2015. The new DR will be located in the Nasdaq Point of Presence (Nasdaq POP) within the Equinix Chicago data center (CH4) located in 350 E. Cermak on the 8th floor. The recently launched Nasdaq POP in Chicago, along with the Nasdaq POP in Equinix’s Secaucus, New Jersey campus, allows customers to connect directly to any of the Nasdaq market systems from remote financial data centers.

CME Clearing Europe Appoints Tina Hasenpusch As CEO
Press Release
CME Clearing Europe, CME Group’s European multi-asset class clearing house, today announces the promotion of Tina Hasenpusch to Chief Executive Officer. Hasenpusch will replace Lee Betsill, who will be returning to Chicago as Managing Director, Global Clearing Operations at CME Clearing.

SGX to invest $15 mln in tech systems after outages, halts fee hikes
Anshuman Daga – Reuters
The Singapore stock exchange (SGX) said on Wednesday it would invest S$20 million ($15 million) to improve its technology after suffering trading disruptions late last year, and will not raise trading fees for the time being.

When Will India’s BSE Go Public?
Leslie P. Norton – Barron’s
As CEO of BSE, formerly known as Bombay Stock Exchange, Ashish Chauhan has dramatically increased trading speeds, revived market share in stocks and derivatives, launched a mutual-fund trading platform, signed a strategic partnership with the S&P Dow Jones indexes to promote the benchmark Sensex, and made it easier for smaller Indian companies to raise capital.

CIS Endorses Plan to Commence Derivatives Trading, Articles
Eromosele Abiodun – THISDAY LIVE
The Chartered Institute of Stockbrokers (CIS) has thrown its weight behind plan by the Nigerian Stock Exchange (NSE) to commence trading in derivatives.

Regulation & Enforcement

Spoofing: Fighting Finagling in Financial Markets
Matthew Leising – Bloomberg
It’s a new crime but it isn’t new. It has a silly name but it’s no joke. Spoofing, a way to manipulate financial markets for illegitimate profit, is blamed for undermining the integrity of trading and contributing to the scariest crash since the financial crisis. Spoofers trick other investors into buying or selling by entering their own buy or sell orders with no intention of filling them. That creates fake demand that pushes prices up or down. Long considered disreputable but rarely dangerous, spoofing has emerged in an era of computerized trading as a threat to market legitimacy. Regulators, lawmakers and market authorities are struggling to define and control it.

SEC Freezes Assets of China-Based Trader Over Qihoo Activity
The U.S. Securities and Exchange Commission obtained a court order Tuesday to freeze the assets of a China-based trader over what it called suspicious activity ahead of a $9 billion buyout offer for a U.S.-listed Chinese Internet company last week.
Haijian Luo, chief executive of a Chinese online company, 4399 Co., bought approximately $700,000 of out-of-the-money call options, or bets that the stock price of a company will go up, before last week’s announcement of a buyout offer for Qihoo 360 Technology Co., according to a news release from the SEC. A person at Mr. Luo’s company said she didn’t know how to reach him.


BofAML rolls out EESAT options COB data screens to buy-side, broker clients
Bank of America Merrill Lynch is rolling out complex order book data provider EESAT’s OptEx desktop display to provide active options traders among the bank’s buy-side client base with access to data consolidated data on spreads trades from all US options exchanges that until now has been out of reach of many of those clients.

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