Observations & Insight

Bits & Pieces
By John J. Lothian

If you are going to sign up interns, newer employers, or are interested yourself in attending the New York sessions of MarketsWiki Education’s World of Opportunity Summer Intern Education Series, the time is now.

If you have had trouble registering because we used Google Doc Forms for the process, just email me at johnlothian@johnlothian.com and give me the following information: names of interns, interns’ email addresses, which sessions they want to attend and to whom to send the invoice.

We have added James Gellert of Rapid Ratings and FinTech entrepreneur John Edge to our New York Summer Intern Series speaker list, rounding out the list of ten. Our lineup includes all segments of the financial sector – brokers, bankers, proprietary traders, exchange executives and more. As this is our first foray into New York, what we need now more than anything is attendees.

Though our speaker lineup covers the entire financial spectrum, a number of them are options-focused, including Ed Boyle of BOX, John Fennell of the OCC and the CBOE‘s Andrew Lowenthal in Chicago, plus ISE‘s Boris Ilyevsky in New York.

Please help us spread the word by sharing this information and registration page with everyone you know that may benefit – interns, college students and young professionals just entering the financial space. Actually, send anyone, including yourself, if interested. As an added enticement, our hosts at the NYSE have offered a limited number of spots for a tour of the trading floor in between sessions. If you have never set foot onto the floor, this may be your last chance.

Like everything we do, this is a grassroots effort, and that means we rely heavily on our friends in the industry to spread the word. While that list includes CME Group, global premier sponsor of the 2015 series, it could not be done without the word-of-mouth and email forwarding campaign with which we hope you will participate.

Lead Stories

Surge in Europe Stock Options Volume Shows Race to Hedge Greece
Roxana Zega and Sofia Horta E Costa – Bloomberg
Whatever happens after Greece’s vote, stock investors have had time to prepare.
They’ve taken action in the options market to hedge against equity selloffs, trading an average of 1.6 million Euro Stoxx 50 Index contracts each day in the past month — the most since 2011. The gauge fell 1.7 percent at 8:10 a.m. in London. Greeks voted 61 percent to 39 percent to reject terms of a European Union bailout, the Interior Ministry said.
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***DA: Gee, no sense waiting until the last minute…

Bats Suffers a 30-Minute Trading Outage on Its EDGX Stock Market
Sam Mamudi – Bloomberg
Technical difficulties forced Bats Global Markets Inc. to halt trading on its second-largest stock exchange for more than 30 minutes on Monday morning.
The company suspended the EDGX market at 9:41 a.m. New York time, saying in a note to customers that it was investigating “an issue related to platform modifications rolled out today.”
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***DA: Curse those dreaded platform modifications!

Greece ’48 Hours Away From Unrest’
Will Wainewright – Bloomberg
Greek Prime Minister Alexis Tsipras probably has 48 hours to resolve a standoff with creditors before civil unrest breaks out and ATMs run out of cash, hedge fund Balyasny Asset Management said.
Fund managers are questioning how the International Monetary Fund and Europe’s leaders can seal a deal with Athens following the “no” vote in a Greek referendum on Sunday. Sixty-one percent of voters rejected austerity, increasing the likelihood of an exit from the euro area.
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The VIX: Analyzing ‘The Big One’
Adam Warner – Schaeffer’s Investment Research
I hope everyone had a fun week last week. As I noted recently, we were in a somewhat extended period since the last “Official” CBOE Volatility Index (VIX) Pop. But, since it was a pre-holiday week amidst the worst time of the year for volatility, I took a few days off. Hey, what are the chances the Vol Pop happens right before July 4th?
Apparently, about 100%. We’ve had Greek news and deadlines and threats and counter-threats and threats to the counter-threats for five years now. But this turned into The Big One.
jlne.ws/1UsuAOV

Asian Bond Risk Rises as Greek Vote Seen Fueling Volatility
Christopher Langner and Lianting Tu – Bloomberg
Greek voters’ rejection of austerity sent ripples through Asian credit markets as bond risk rose.
The Markit iTraxx Asia index of credit-default swap prices increased 1.5 basis points to 112.3 basis points, prices from Westpac Banking Corp. show. That leaves it set for its biggest daily jump in a week, according to data provider CMA.
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VIX Last Week – June 29 – July 2
Russell Rhoads – VIX Views
VIX rallied over 34% on Monday as the Greece situation worsened and global equity markets sold off. The front month July VIX contract gained just under 20%. As the week progressed we gained insight into June economic activity with an unusual Thursday release of the non-farm payroll report. The stock market moved on quickly and VIX and the July future both finished the week with a 16 handle. The curve, which moved to backwardation on Monday finished the week in contango, but a much flatter version of contango than we have witnessed as of late.
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CBOE Futures Exchange To List VIX ‘Weeklys’ Futures July 23
Press Release – CBOE
CBOE Futures Exchange, LLC (CFE) today announced that it plans to list futures with weekly expirations on the CBOE Volatility Index (VIX Index) beginning Thursday, July 23, 2015, subject to regulatory review. VIX Weeklys options at CBOE are expected to follow, also subject to regulatory approval.
The VIX Index is based on real-time prices of options on the S&P 500 Index (SPX) and is designed to reflect investors’ consensus expectations for 30-day stock market volatility. Standard VIX futures and options expire monthly. Weekly VIX futures and options expirations offer convergence to the VIX cash index four to five times per month, instead of once a month. Generally, the closer VIX futures and options get to expiration, the closer they tend to parallel the underlying VIX Index.
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Will the CBOE VIX Predict the Next Stock Market Crash? (^GSPC, VXX)
Dan Caplinger – The Motley Fool
Everyone wants a way to predict the next market crash before it happens. The Chicago Board Options Exchange Volatility Index, also known as the CBOE VIX, has become increasingly popular as a gauge of investor anxiety in the market, with many investors tracking the VIX on a daily or even intraday basis to figure out whether a stock market downturn could be imminent.
Yet countless people don’t really understand what the CBOE VIX represents, and therefore have made disastrous bets trying to use it in a predictive way. To help you avoid that mistake, let’s take a closer look at the VIX, and what it really means for your investing strategy.
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***DA: It has predicted eight of the last three crashes.

China Brokers Dust Off Wall Street Playbook From 1929 Crash
Bloomberg
On Wall Street in 1929, it was the great banking houses of J.P. Morgan and Guaranty Trust Company.
In China today, it’s names like Citic Securities Co. and Guotai Junan Securities Co.
They’re separated by 86 years and 7,300 miles, but Chinese financiers are turning to the same playbook used by their American counterparts to fight a crash that’s wiping out stock-market fortunes on an unprecedented scale.
jlne.ws/1Hb0KHJ

***DA: Most modern skyscrapers do not have windows that open.

Exchanges

Oil options pit empties on eve of CME futures shutdown
Gregory Meyer – Financial Times
New York’s oil options pit, once a boisterous holdout against electronic markets, has become a sleepy seat of what might be called low-frequency trading.
One day last month 317 crude oil options changed hands on the New York Mercantile Exchange floor — less than one a minute — where traders using shouts and hand signals previously executed 50,000 options daily. In June the pit accounted for just 2 per cent of options on West Texas Intermediate crude, the world’s most active oil options contract, down from 40 per cent four years ago.
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For Chicago futures traders, one final round in the ring
Tom Polansek – Reuters
A few dozen Chicago traders will don their multicolored jackets to trade soybean and forex futures the old-fashioned way one last time on Monday, marking the end of 167 years of open-outcry trading in the city where it was born.
Barring a last-minute delay by U.S. regulators, CME Group Inc will end most of its open-outcry futures operations in Chicago and New York after the closing bell on Monday, concluding a tradition that once epitomized global financial markets but succumbed to the efficiency and speed of machines.
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Prices cool for ringside seats as Chicago futures floors wind down
Michael Hirtzer – Reuters
The cost of membership at Chicago’s famous futures trading exchanges has topped $1 million in the past as traders snapped up the chance for benefits like cut-price fees on deals.
But prices are sinking as the imminent closure of a huge part of business on the trading floors reduces the appeal of a ringside seat, and threatens a supply glut for sale or leasing as many players retire.
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Hillary Clinton e-mails show friendly face to CME’s Terry Duffy – Finance News
Crain’s Chicago Business
Hillary Clinton tried to help one private-equity boss with a visa problem and encouraged another on a project in China. She apologized to the chairman of a big corporation for failing to commit to an event right away.
“So sorry I haven’t responded before but I’ve been hip deep in the rollout of the Afghanistan strategy,” Clinton wrote to Terrence Duffy, executive chairman of futures market operator CME Group and a supporter of her 2008 presidential campaign. “I hope you, your family, and the futures markets are all well!”
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MIAX Options Exchange Announces Hiring of John Smollen as Its New Executive Vice President – Head of Exchange Traded Products and Strategic Relations
Press Release – MIAX
MIAX Options Exchange (MIAX) announced today that John Smollen has been hired as its new Executive Vice President – Head of Exchange Traded Products and Strategic Relations. Prior to his hiring, Mr. Smollen provided consulting services to MIAX as a strategic advisor.
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BOX Price Improvement Activity for May
Press Release – BOX
In the month of May, price improved contracts on BOX Options Exchange (“BOX”) averaged 207,930 per day. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $341,729 per day, while total savings to investors in May was $6.83M. With this, BOX has saved investors over $631M since its inception in 2004. Overall average daily trading volume on BOX in the month of May was 341,010 contracts.
jlne.ws/1FZiEN5

CBOE Holdings Reports June 2015 Trading Volume
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that total trading volume in June for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) and futures contracts on CBOE Futures Exchange (CFE) was 99.2 million contracts, an increase of 16 percent from May 2015 and a decrease of 1 percent from June 2014.
Total options and futures average daily volume (ADV) at CBOE Holdings for June was 4.5 million contracts, an increase of 6 percent from May 2015 and a decrease of 5 percent from June 2014.
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CBOE Futures Exchange Reports June 2015 Trading Volume
Press Release – CBOE
CBOE Futures Exchange, LLC (CFE) today reported that June 2015 monthly average daily volume (ADV) and monthly total volume, both exchangewide at CFE and for futures on the CBOE Volatility Index (VIX Index), rose from last month and from year-ago levels. June total volumes hit highs for 2015, surpassing previous monthly highs set in January.
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CME Group Volume Averaged 14.6 Million Contracts per Day in June 2015, Up 15 Percent from June 2014
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that June 2015 volume averaged 14.6 million contracts per day, up 15 percent from June 2014. Total volume for June 2015 was more than 320 million contracts, of which 88 percent was traded electronically. Options volume in June averaged 2.9 million contracts per day, up 28 percent versus June 2014, with electronic options growing 48 percent over the same period.
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ISE Holdings Reports Business Activity for June 2015
Press Release – International Securities Exchange, LLC
ISE and ISE Gemini combined represent 17.8% of equity options market share, excluding dividend trades.
ISE and ISE Gemini reported a combined ADV of 2.4 million contracts.
Dividend trades made up 1.1% of industry volume in June 2015.
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Intercontinental Exchange Reports ICE and NYSE Monthly Statistics for June 2015; Energy Daily Volume up 6%, Ags up 13%, Cash Equities up 18% over Prior June
Press Release – Intercontinental Exchange
Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, today reported June exchange traded volume.
ICE’s June 2015 futures and options average daily volume (ADV) declined 1% compared to June 2014.
Commodity ADV increased 7% led by Brent, Gasoil, Other Oil, Nat Gas and Sugar up 1%, 14%, 7%, 6% and 9% respectively, from the prior June.
Financials ADV declined 8% from the previous June primarily due to continued low volatility in Continental European short-term interest rates, partially offset by single stock equities and equity indices up 21% and 2%, respectively.
ADV for NYSE’s U.S. cash equities increased 18%, while U.S. equity options ADV declined 23% over the prior June. NYSE’s U.S. cash equities market share was 25.3% and NYSE’s U.S. options market share was 18.6%.
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MIAX Options Exchange Announces May 2015 Market Share Record and Volume Statistics; CEO to Present at Sandler O’Neill 2015 Global Exchange and Brokerage Conference on June 3, 2015
Press Release – MIAX
MIAX Options Exchange (MIAX) announced today that in May 2015 it established a new MIAX monthly market share record with 7.56% of the overall equity options market share for the month. This new record surpasses the 7.29% mark established in April 2015. For the month of May 2015, MIAX executed over 20,800,000 million contracts. This equated to an average daily volume of over 1,040,000 contracts, or 2.7 times May 2014 volume.
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OCC Cleared Contract Volume Grew 4% in June
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in June reached 340,826,276 contracts, up 4 percent from June 2014 volume of 327,922,056 contracts. OCC’s year-to-date average daily cleared contract volume is down 6 percent from 2014 with 16,028,458 contracts in 2015.
Options: Exchange-listed options volume reached 334,470,144 contracts in June, a 4 percent increase from June 2014 volume of 321,358,397 contracts. Year-to-date average daily options volume is down 6 percent from 2014 with 15,798,639 contracts in 2015.
Equity options volume in June was 298,418,532 contracts, a 4 percent increase from June 2014. Index options volume in June was up 9 percent from June 2014 with 36,051,612 contracts.
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Options Exchange Marketshare – June 2015
Press Release (via email) – OCC

June 2015 Total Options Marketshare:
AMEX- 8.20%
BATS- 9.64%
BOX- 2.18%
CBOE- 26.21%
C2- 2.06%
GEM- 3.50%
ISE- 12.25%
MIAX- 6.37%
NOBO- 0.76%
NSDQ- 5.95%
NYSE Arca- 8.40%
OMX PHLX- 14.49%

June 2014 Total Options Marketshare:
AMEX- 11.44%
BATS- 3.86%
BOX- 2.71%
CBOE- 28.10%
C2- 1.94%
GEM- 1.91%
ISE- 11.18%
MIAX- 3.31%
NOBO- 0.67%
NSDQ- 9.35%
NYSE Arca- 10.22%
OMX PHLX- 15.31%

June 2015 Equity Options Marketshare:
AMEX- 9.18%
BATS- 10.80%
BOX- 2.45%
CBOE- 17.46%
C2- 2.25%
GEM- 3.91%
ISE- 13.69%
MIAX- 7.14%
NOBO- 0.85%
NSDQ- 6.66%
NYSE Arca- 9.40%
OMX PHLX- 16.20%

June 2014 Equity Options Marketshare:
AMEX- 12.50%
BATS- 4.30%
BOX- 3.03%
CBOE- 20.35%
C2- 2.15%
GEM- 2.13%
ISE- 12.42%
MIAX- 3.69%
NOBO- 0.75%
NSDQ- 10.40%
NYSE Arca- 11.23%
OMX PHLX- 17.05%

Regulation & Enforcement

Regulation vs Culture
Alice Attwood – Futures & Options World
Following recent scandals and allegations of market manipulation, can financial services adopt industry-wide culture changes and sweeping reforms, and what have fined firms done to demonstrate their commitment to change? Alice Attwood reports.
Reverberations of the Libor and foreign exchange benchmark fixing scandal can still be felt throughout the market and the creation of a regulator focused on conduct is indicative of the focus on employees and the culture embedded within companies operating in the space.
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Strategy

Big Last Week for VIX re: Backwardation, Big Moves & Volume, ETH, Put/Call Ratio, and Bollinger Bands
Matt Moran – CBOE Options Hub
After the news broke last Sunday (June 28) regarding the closing of banks in Greece, worldwide markets for stocks and oil plunged, and investors sought assets that could rise and serve as diversifiers. The VIX July futures prices responded by rising from 14.525 on June 26 to 17.375 on the next trading day (June 29).
Below are seven key points about VIX action during this past big week – these points could be of interest to technical analysts who are looking for trading signals, and to portfolio managers who wish to diversify in times of market stress around-the-clock.
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The Week in Russell 2000 Trading – 6/29 – 7/2
Russell Rhoads – CBOE Options Hub
During all the market excitement on Monday last week the Russell 2000 dropped 2.6% while the large cap focused Russell 1000 lost 2.1%. The real difference between small cap and large cap stocks occurred after the dust settled from Monday. The Russell 1000 was able to gain 0.9% after to finish the week down 1.2% while the Russell 2000 did a whole lot of nothing and finished the week down 2.5%. This is the first time in a while that large cap stocks have dominated and is a bit surprising since the news focus was all about Greece and the global economy last week.
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