Observations & Insight

Editor’s note: JLN Options would like to thank Livevol CEO Catherine Clay for filling in this week as guest editor. Not only did she provide a daily dose of thought provoking commentary at the start of each newsletter, she also threw in a few “zingers” into her individual story comments.

Tax-reporting Changes for Options Trading
Catherine Clay, Livevol CEO
No one ever said trading options was simple. Unfortunately, the same is true of tax treatment of options gains or losses.

Fortunately (or unfortunately, depending on your point of view), new IRS regulations regarding options trading became effective on January 1, 2014. Starting with options purchased this year, your broker will have to report transactions to the IRS when you close the position, including your cost basis, and your short- or long-term capital gains or losses.

Read More >>>   http://jlne.ws/1g2tlBv

Lead Stories

CBOE Holdings quarterly profit jumps, tops Wall St estimates
Reuters
CBOE Holdings Inc, which runs the largest U.S. stock-options market, reported a rise in quarterly profits on Friday as higher trading volumes generated more income from transaction fees. A lower tax rate for the company during the fourth quarter, compared to a year earlier, helped lift earnings above Wall Street analysts’ expectations.
http://jlne.ws/Nfe9rj
***DA: Press release from CBOE in Exchange section below. 

Rick Lane Q&A: How Trading Technologies plans to revolutionize trading
John Lothian News
Rick Lane has been looking into the future for some time now. The former co-founder of Tickit Trading, which was acquired by Trading Technologies in 2010, has quickly risen from chief technology officer in April 2012 to the new CEO of TT. As CTO, he’s also been busy overseeing a major rebuilding of TT’s technology, which is soon to be unveiled. Now he now succeeds industry legend Harris Brumfield, who has run the company for the past 11 years. Brumfield will take on the role of chairman of TT. John Lothian News editor-in-chief Jim Kharouf spoke with Lane on Thursday about the new post, what he brings to the top post at TT and where the firm is going next.
http://jlne.ws/1fYwhyY
*** CC:  I like the “Lego” idea of piecing together parts of a trading application.

Foreign-Exchange Probe Widens
Wall Street Journal
Foreign-exchange options are the latest issue to come under scrutiny. These contracts, which banks often sell to clients, pay out in the event that exchange rates reach certain levels. They are heavily traded: A notional $337 billion changes hands in the overall FX options market each day, according to the Bank for International Settlements.
http://jlne.ws/1bDr5j8

NSE to float futures based on India VIX from Feb 26
Business Standard
Premier bourse National Stock Exchange (NSE) has decided to float futures contracts based on its volatility index (VIX) with effect from February 26.
http://jlne.ws/1o1rilz

A New King Among Volatility ETNs
ETF Trends
There is a new sheriff in town among volatility exchange traded notes: The VelocityShares Daily Inverse VIX Short-Term ETN. Investors’ ongoing desire to profitably harness volatility pushed XIV to the top spot among volatility ETNs Friday morning, marking the first time since 2009 the iPath S&P 500 VIX Short-Term Futures ETN (VXX) is not the largest volatility-based ETN.
http://jlne.ws/1f1TKw7

Last Gasp for Stock Options?
Emily Chasan – Wall Street Journal
Stock options are on the verge of extinction. The once-popular form of pay, which for decades enriched senior executives and sometimes turned secretaries into millionaires, is almost disappearing as companies gravitate toward restricted stock awards.
http://jlne.ws/Nfy49I

Exchanges

Exchanges Spar Over Data System
Bradley Hope – WSJ.com
U.S. exchanges are at loggerheads over the maintenance of a critical piece of market infrastructure. At the heart of the dispute is a Securities Information Processor, or SIP, a system that consolidates quote and trade data for U.S. stocks.
http://jlne.ws/1ga4RVM

CBOE Holdings Reports Best Fourth-Quarter Results Ever
MarketWatch (Press Release)
CBOE Holdings, Inc. CBOE announced its best fourth-quarter results ever, as well as record revenue and earnings for the full-year 2013, marking the third consecutive year of record financial results. http://jlne.ws/1fErtNx

Wall Street watchdog FINRA to monitor BATS’ markets
Reuters
Exchange operator BATS Global Markets said on Thursday it would outsource part of the surveillance of its four U.S. stock markets to the Financial Industry Regulatory Authority, expanding the industry-funded watchdog’s oversight to nearly all equities markets.
http://jlne.ws/1bwLkfl

Ava launches PowerOption regulated binary options platform
ITWeb
The platform, which offers traders a full range of Forex pairs, commodities, stock indices and equities, and a variety of trading styles, has been in operation since November 2013 and now launches in the European Union.
http://jlne.ws/NfoNyi

Betting on volatility to get easier from this month
Business Standard
The National Stock Exchange (India)  has announced that it would be starting a product which allows investors to bet on market volatility by the end of the current month. “Futures contracts on India VIX shall be made available for trading in Futures & Options segment w.e.f. February 26, 2014,” said an announcement on the exchange website.
http://jlne.ws/LXeEW8
***DA: Nifty idea.

Market Sees Biggest Outflows In A Decade
ETF Daily News
The insightful Lowry Research Corporation conducted an exhaustive study of every market top since the Great Depression and found that the number of individual stocks participating in a bull market clearly declined as the index hit a major peak. Put another way, participation in a bull market fades as individual stocks enter their own private bear markets well before the market peaks. Here is a quick snapshot of their findings when observing the 14 major tops between 1929 and 2007, which is quite astounding.
http://jlne.ws/1iy2RsB

Regulation & Enforcement

How Ben Horowitz Avoided an Options Backdating Scandal
NY Times Dealbook
Mr. Horowitz, a co-founder of the venture capital firm Andreessen Horowitz, said in a blog post on Thursday that he narrowly avoided getting caught up in the options backdating investigations that swept corporate America in 2006. What saved him, he said, was a skeptical general counsel who recommended against adopting a compensation practice used at other companies.
http://jlne.ws/1bwJZVW

Preet Bharara: Now 79 for 79 on Insider-Trading Cases
Maureen Farrell  – MoneyBeat – WSJ
Steven A. Cohen might be getting worried now. Following a jury’s conviction Thursday of former SAC portfolio manager Mathew Martoma, Wall Street’s top prosecutor Preet Bharara is 79 for 79 on insider trading cases during his tenure as U.S. attorney for the Southern District of New York.
http://jlne.ws/1ga4Ukq
***CC – Market regulators picking up the pace since Madoff embarrassment..

Regulators “don’t give a damn” about Volcker impact, claim Republicans
Peter Madigan – Risk magazine
US regulators did not conduct a formal cost-benefit analysis in considering the Volcker rule, the chairman of the Securities and Exchange Commission admitted yesterday, arguing the proprietary trading ban was promulgated under a statute that did not require an analysis of its impact.
http://jlne.ws/1ga4UAT
***DA: Best line from Rep. Michael Capuano to Mary Jo White – “during this hearing, someone may as well just ask you ‘why do you hate America?’”

Strategy

Weekly Market Commentary 2.7.14
By Larry McMillan – CBOE Options Hub
The stock market finally halted its straight-down tailspin. A strong rally generated some oversold buy signals which could carry the market back towards its declining 20-day moving average.
The $SPX chart is negative, in a pattern of lower highs and lower lows, and that is what makes it bearish. http://jlne.ws/1iAZcIc

Japan Bears Push Puts to Year High Amid Nikkei 225 Rout: Options
Bloomberg
The cost of bearish bets on Japan’s Nikkei 225 Stock Average surged, touching a one-year high as the gauge led declines amid a global equity rout. Puts protecting against a 10 percent drop for the Nikkei 225 cost 6.5 points more than calls betting on gains, according to data on one-month options compiled by Bloomberg. 
http://jlne.ws/1ixXwS7
*** CC: Time to be a contrarian? You know what they say about “blood in the street” as a time to be a buyer.

The VIX and the Case of the Missing Bulls
Adam Warner – Shaeffer’s Investment Research
Amazing what a couple of weeks will do to sentiment. Having said that, it’s certainly a sentiment consistent with what we’ve seen in the volatility markets. As we noted earlier in the week, VIX-Everything is booming in terms of both volume and the price of what everyone’s actually buying.
http://jlne.ws/My08nL

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